06 December 2013 - 21:54 pm
Will the Federal Reserve take away stimulus just before Christmas? Friday’s bumper jobs report has economists asking whether a December taper of its quantitative easing programme is now on the cards.
Several economists said that the Fed is now more likely to begin unwinding the bond buying programme when officials meet on December 18-19.
Ward McCarthy, analyst at Jefferies, suggested as much:
The labour market continues to move in the right direction. The rate of improvement in October and in November has been encouraging. In our opinion, today’s data release points to small $5bn tapering of Treasuries at the upcoming December 17-18 FOMC meeting.
Paul Ashworth, of Capital Economics, said the US economy appears ready for the weaning to begin:
The 203,000 increase in November’s non-farm payrolls, along with the drop in the unemployment rate to a five-year low of 7.0%, gives the Fed all the evidence it needs to begin tapering its asset purchases at the next FOMC meeting later this month.
And Joshua Shapiro, of MFR, said that the only real question is whether to wait for Janet Yellen to take the helm of the Fed: >> Read More
22 November 2013 - 5:28 am
Is the Fed is about to make a major policy error?
The FOMC thinks it can taper its $85bn monthly bond purchases without tightening monetary policy. It hopes to wind down QE stimulus while at the same time offsetting this by holding down long-term interest rates by mere rhetoric, or “forward guidance”.
That was the basic message from the Fed Minutes – apart from the general confusion, and lack of conviction that anything really works, asTim Duy from Fed Watch says here.
This sort of smooth exit is possible only if you believe in the “creditist” doctrines of Fed chief Ben Bernanke, an outlook that has somehow become orthodoxy in the US and is broadly shared by the markets.
Bernanke seems to work from the assumption that the interest rate is the only thing that matters, as you would expect since he made his name at Princeton studying the “credit channel” causes of depressions. >> Read More
04 November 2013 - 9:35 am
This week includes a GDP report, a jobs report, and a speaking engagement with Federal Reserve Chairman Ben Bernanke.
Here’s your Monday Scouting Report:
- The Stock Market Is In A Bubble: That’s what increasing numbers of market watchers are warning. And many of them point to the cyclically-adjusted price-earnings (CAPE) ratio, which is considerably higher than its long-term average.
“There are a number of reasons that investors should be careful relying solely on one valuation model to determine whether the equity market is under or overvalued,” cautioned Jefferies’ Sean Darby. Defending the stock market, Darby noted that S&P 500 profits are skewed in the index, large cash holdings justify a higher price-earnings multiple, stocks don’t have to fall for CAPE to correct, and other measures of profit appear reasonable.
Economic Calendar >> Read More
31 October 2013 - 22:24 pm
The days of markets hanging on Ben Bernanke’s every word are numbered, and there’s a date for the new era. Analysts, traders and investors will want to mark November 14 in their diaries.
A Senate aide told that the Senate Banking Committee is looking at that day as a possible date to hold a hearing with Janet Yellen on her nomination to be the next Federal Reserve Chairman.
Some Republican senators, including John McCain, Rand Paul and Lindsey Graham, have suggested they could try to delay the hearing in an effort to extract concessions from the White House on other issues.
Ms Yellen needs to face the banking committee before she faces confirmation from the full Senate. Her inquisition is expected to be confrontational – as the vetting of most of President Barack Obama’s important appointees has been – as Republicans have been sceptical of the Federal Reserve’s loose monetary policy.
Mr Obama nominated Ms Yellen, who has been a staunch supporter of Mr Bernanke’s policies, on October 9.
30 October 2013 - 18:14 pm
Remember when minutes before the September FOMC announcement everyone was absolutely certain the Fed would announce tapering, only to leave a lot of very angry traders fuming? Fast forward one month when everyone is absolutely certain, again, that there is no way the Fed can announce anything even remotely suggesting a taper. One wonders though: since the Fed has by now burned all credibility bridges, and since the capital market bubble is now far greater than it was when both Stein and Bernanke, implicitly, warned about a building asset bubble (a chorus which has now been joined by JPM, Pimco and BlackRock) in early 2013, would today not be the best opportunity for the Fed to once again stun the market with a dramatic policy U-Turn, just to teach those momentum wave-riding vacuum tubes who is in charge? Probably not. However, as Lloyd Christamas noted, there is a chance. Deutsche Bank’s Jim Reid explains why.
So will today’s FOMC be as surprising to the market as the September meeting? Almost certainly not but you can’t completely rule out a small taper for the following reasons: 1) In the September meeting a large majority of FOMC participants expected the taper to start before December; 2) the fiscal situation has been kicked down the road for a while; 3) financial conditions have arguably eased since the last meeting with rates lower and equities higher and 4) many of the members won’t be on the committee into next year and may want to make a statement before leaving; and 5) they may feel a little bruised by the market’s verbal reaction last time. >> Read More