Tag Archives: Chairman Ben Bernanke

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Investors Eye Fed for Further Clues on Interest Rates

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By The Associated Press

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Manuel Balce Ceneta/APFederal Reserve Chairman Ben Bernanke

By MARTIN CRUTSINGER

WASHINGTON — When the Federal Reserve offers its latest word on interest rates this week, few think it will telegraph the one thing investors have been most eager to know: When it will slow its bond purchases, which have kept long-term borrowing rates low.

The Fed might choose to clarify a separate issue: When it may raise its key short-term rate. The Fed has kept that rate near zero since 2008. It’s said it plans to keep it there at least as long as unemployment remains above 6.5 percent and the inflation outlook below 2.5 percent.

Unemployment is now 7.6 percent; the inflation rate is roughly 1 percent.

Chairman Ben Bernanke has stressed that the Fed could decide to keep its short-term rate ultra-low even after unemployment reaches 6.5 percent. Testifying to Congress this month, Bernanke noted that a key reason unemployment has declined is that many Americans have stopped looking for jobs. When people stop looking for work, they’re no longer counted as unemployed.

If that trend continues, Bernanke said that lower unemployment could mask a still-weak job market and that the Fed might feel short-term rates should stay at record lows.

In the statement the Fed will issue when its two-day meeting ends Wednesday, it could specify an unemployment rate below 6.5 percent that would be needed before it might raise its benchmark short-term rate. It might also say that it won’t raise that rate if inflation fell below a specific level.

Investors would react to any such shift in the Fed’s guidance. Financial markets have been pivoting for months on speculation that the Fed will or won’t soon slow its $85-billion-a-month in Treasury and mortgage bond purchases. Those purchases have led more consumers and businesses to borrow, fueled a stock rally and supported an economy slowed by tax increases and federal spending cuts.

The Fed has signaled that it might slow its bond buying as soon as September — if the economy has strengthened as much as the Fed has forecast. If not, the Fed would likely maintain its stimulus.

On Wednesday, the government will report how fast the economy grew in the April-June quarter. Most economists predict an annual rate of barely 1 percent — far too weak to quickly reduce unemployment. Most think the growth is picking up in the second half of the year on the strength of a resurgent housing market, stronger auto sales, steady job gains and higher pay.

Many economists think the key goal of the Fed’s policy discussions Tuesday and Wednesday will be to stress that the Fed’s actions in coming months will hinge on how the economy fares, not on any timetable.

Some economists think the Fed will be mindful …read more

Source: FULL ARTICLE at DailyFinance

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Bernanke Says Fed's 'Stress Tests' Show Much Healthier Banks

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By The Associated Press

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By MARTIN CRUTSINGER

WASHINGTON (AP) – The Federal Reserve’s annual “stress tests” of major U.S. banks have become better able to detect risks, Chairman Ben Bernanke said Monday night. He said the tests show that the banking industry has grown much healthier since the financial crisis.

Speaking in Atlanta, Bernanke noted that this year’s tests showed that 18 of the biggest banks had collectively doubled the cushions they hold against losses since the first tests were run in 2009. He says the tests are providing vital information to regulators.

The latest test results were released last month. They showed that all but one of the 18 banks were better prepared to withstand a severe U.S. recession and an upheaval in financial markets. The tests are used to determine whether the banks can increase dividends or repurchase shares.

Bernanke’s comments came in a speech to a financial markets conference sponsored by the Federal Reserve Bank of Atlanta. He said he viewed the first stress test conducted in 2009, months after the financial crisis struck, as “one of the critical turning points in the crisis.”

“It provided anxious investors with something they craved: credible information about prospective losses at banks,” he said.

Bernanke said that in the ensuing years, the Fed has worked to improve the stress tests so they could serve as a resource for banking regulators to monitor and detect threats to the financial system.

During a question period after the speech, Bernanke was asked what kept him up at night.

“Let me assure you, there are no major problems you haven’t heard about,” he said in response. He said his list of concerns include whether the recovery will gain momentum and when the country will get back to full employment.

He said the economic situation in Europe also remains complex, as that region struggles to deal with its debt crisis. He said in the United States, a major issue remains how to deal with high budget deficits without compromising the economic recovery.

Bernanke made no comments during his appearance that suggested he was ready to modify the low-interest rate policies the Fed is pursuing in an effort to boost economic growth and lower unemployment.

The stress tests have been criticized by some banks because the central bank has kept secret the full details of the computer models it is using to evaluate each bank. The Fed has defended this practice. It has argued that it is similar to teachers not giving students specific questions that will appear on a test to guard against students memorizing the answers.

“We hear criticism from bankers that our models are a ‘black box’ which frustrates their efforts to anticipate our supervisory findings,” Bernanke said. He said that over time, the banks should better understand the standards the tests are measuring.

In this year’s test, the Fed approved dividend …read more

Source: FULL ARTICLE at DailyFinance

Articles of Interest

Bernanke: ‘Stress Tests’ Show Banking Industry Has Grown Stronger

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By The Huffington Post News Editors

WASHINGTON — The Federal Reserve’s annual “stress tests” of major U.S. banks have become better able to detect risks, Chairman Ben Bernanke said Monday night. He said the tests show that the banking industry has grown much healthier since the financial crisis.

Speaking in Atlanta, Bernanke noted that this year’s tests showed that 18 of the biggest banks had collectively doubled the cushions they hold against losses since the first tests were run in 2009. He says the tests are providing vital information to regulators.

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More on Ben Bernanke

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Source: FULL ARTICLE at Huffington Post

Articles of Interest

Yellen: Fed Should Focus On Jobs, Even If Inflation Edges Past Target

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By The Huffington Post News Editors

(Adds comments on Japan stimulus)
By Pedro Nicolaci da Costa
WASHINGTON, April 4 (Reuters) – The Federal Reserve should focus its energies on bringing down an elevated U.S. unemployment rate even if inflation “slightly” exceeds the central bank’s target, Fed Vice Chair Janet Yellen said on Thursday.
Yellen, who is seen as a potential successor to Chairman Ben Bernanke, says she looks forward to the day when policymakers can abandon unconventional tools like asset purchases and return to the conventional business of lowering and raising interest rates, currently set at effectively zero.
But she made that clear that time is not near, saying eventual “normalization” of policy by the Federal Open Market Committee is still far in the future.
“Progress on reducing unemployment should take center stage for the FOMC, even if maintaining that progress might result in inflation slightly and temporarily exceeding 2 percent,” Yellen told a meeting sponsored by the Society of American Business Writers and Editors.
Yellen said she favored adjusting the pace of Fed bond purchases, currently running at $85 billion a month, in response to changes in economic conditions.
The U.S. economy showed signs of strength in the first quarter, with many economists predicting an annualized growth rate above 3 percent. However, March figures have been more subdued, prompting some analysts to revise down their forecasts for employment growth in a report due out on Friday.
The economy generated 236,000 jobs in February, while the jobless rate fell to 7.7 percent.
Yellen said an eventual end to the central bank’s bond-buying stimulus will not mean interest rate increases are imminent, stressing the weak nature of the recent economic recovery.
“Adjusting the pace of asset purchases in response to the evolution of the outlook for the labor market will provide the public with information regarding the committee’s intentions and should reduce the risk of misunderstanding and market disruption as the conclusion of the program draws closer,” she said. …read more

Source: FULL ARTICLE at Huffington Post

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Fed Seen Maintaining Stance on Record Low Interest Rates

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By The Associated Press

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Richard Drew/AP Federal Reserve Chairman Ben Bernanke is seen on a monitor on the floor of the New York Stock Exchange on Tuesday, the same day Bernanke told Congress maintaining low interest is necessary in an economy is still burdened by high unemployment.

By MARTIN CRUTSINGER

WASHINGTON — The Federal Reserve on Wednesday is expected to maintain its resolve to keep borrowing costs at record lows despite growing signs that the economy is strengthening.

The Fed will end a two-day meeting with a policy statement and updated economic forecasts. Afterward, Chairman Ben Bernanke will hold a news conference. Most analysts think policymakers will acknowledge the economy’s improvements but leave the Fed’s stimulative policies unchanged.

Bernanke has said in recent weeks that the job market, in particular, has a long way to go to full health and still needs the Fed’s extraordinary support.

The unemployment rate, at 7.7 percent, remains well above the 5 percent to 6 percent range associated with a healthy economy. The Fed has said it plans to keep short-term rates at record lows at least until unemployment falls to 6.5 percent, as long as the inflation outlook remains mild. And it foresees unemployment staying above 6.5 percent until at least the end of 2015.

Economists think Bernanke will take note of the economy’s gains. But most foresee no pullback in the Fed’s strategy of keeping short-term rates at record lows and of buying $85 billion a month in Treasurys and mortgage bonds to keep long-term loan rates down.

“Even though the economy has improved, it has not improved enough to switch course,” says Diane Swonk, chief economist Mesirow Financial. “We don’t have unemployment low enough yet.”

The economy slowed to an annual growth rate of just 0.1 percent in the October-December quarter, a near-stall that was due mainly to temporary factors that have largely faded. Economists think growth has rebounded in the January-March quarter to an annual rate around 2 percent or more. The most recent data support that view.

Americans spent more at retailers in February despite higher Social Security taxes that shrank most workers’ paychecks. Manufacturing gained solidly in February. And employers have gone on a four-month hiring spree, adding an average of 205,000 jobs a month. In February, the unemployment rate, though still high, reached its lowest point in more than four years.

The brighter news has prompted speculation that the Fed might be preparing to dial back its easy-money policies. Such thinking has been fed by concerns voiced by a few Fed regional bank presidents about the low-rate policies.

Inflation Fears

These include fears that the Fed has pumped so much money into the economy that it could eventually ignite inflation, fuel speculative asset bubbles or destabilize markets once the Fed has to start raising rates or …read more
Source: FULL ARTICLE at DailyFinance

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The Dow Staves Off a Case of Cypriotitis

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By Jeremy Bowman, The Motley Fool

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Negative pressure from Cyprus killed an early rally on housing starts today, and the Dow Jones Industrial Average essentially finished the session unchanged, gaining 4 points, or 0.03%. The S&P 500 and Nasdaq were less fortunate and both fell about 0.25%.

The Cypriot parliament voted decisively against a bailout plan that would have required those holding deposits in the island nation’s banks to pay a percentage of their deposits for Cyprus to receive bailout funding. Though the idea that depositors would take a hit was anathema to world markets, the parliament’s rejection forced a new round of uncertainty on investors, sending stocks downward this afternoon. Following the parliament’s vote, the European Central Bank said it was still committed to finding a way to provide liquidity to Cyprus, though within limits.

The housing market, meanwhile, continued to drive stocks higher, as February housing starts and building permits both topped expectations at an annual rate of 917,000 and 946,000, respectively. Building permits reached their highest level since June 2008, and the economy also added 48,000 construction jobs, indicating that activity in the sector appears to be picking up.

Notably, the two best-performing Dow stocks today were the usually quiet consumer staples Coca-Cola and Procter & Gamble , rising 1.5% and 1.3%, respectively. There was no major news on either of these companies, but their gain today seemed to confirm the uncertainty injected into markets by the Cyprus chatter. Although the Dow fell more than 130 points from its morning high to its afternoon low, Coke and P&G made steady gains throughout the day, as investors turned to the relative safety the two stocks offer. While the continued success of Coke and P&G may not be as certain as saying the sun will come up tomorrow, their brand strength and distribution network make them among the best defensive plays around.

Conversely, Caterpillar and Alcoa were two of the worst performers, down 1.2% and 0.9%, as their macroeconomic sensitivity makes them potential losers in any carryover effect from Cyprus. These manufacturers are extremely dependent on foreign demand and have struggled as the China juggernaut mellows and Europe tries to escape recession.

Tomorrow, financial eyes will turn toward our own economy with the release of the Federal Reserve‘s interest-rate decision. While the central bank is likely to continue its bond-buying program, investors are always curious for any insight into Chairman Ben Bernanke thoughts on the economy and the Fed’s actions.

Coca-Cola’s wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you’ll want to click here now and get started!

…read more
Source: FULL ARTICLE at DailyFinance

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Are Warren Buffett and Natural Gas Killing the Golden Age?

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By Douglas Ehrman, The Motley Fool

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Earlier this month, The Wall Street Journal reported that Warren Buffett’s BNSF Railway will initiate a pilot program to investigate the viability of using natural gas to power its locomotives. If the program is successful, it would have wide ramifications, as the company is believed to be one of the largest consumers of diesel fuel in the country, second only to the U.S. Navy. The path from the shale gas boom to improved economic conditions, curtailed oil prices, and a stronger U.S. dollar isn’t a simple one, but it does follow a fairly straight series of connections. The ultimate result of this daisy chain of causes and effects is that gold prices are under legitimate pressure for the first time in many years.

The pilot program
While outfitting a locomotive to run on liquefied natural gas, or LNG, is not a simple procedure, it has the potential to result in significant cost savings. The price of a single locomotive that currently sits at roughly $2 million could rise by as much as $1 million for early conversations — economies of scale would presumably lower costs over time. The company didn’t fully disclose how much it would cost to retrofit its 6,900 existing engines.

Against this increase, where a single gallon of diesel went for an average of $3.97 last year, the comparable amount of LNG cost less than $0.50. Given the amount of fuel a locomotive burns, the additional cost would quickly be realized in savings from lower-cost operation. This number doesn’t include the necessary cost of cooling the LNG, but the savings are still expected to be significant.

The path from LNG to lower gold prices
Let’s start by accepting that the path I am about to describe is necessarily simplified, but it should serve as a good primer to understanding the larger issues. To begin with, as a result of exploding natural gas and shale oil reserves, the U.S. is importing significantly less oil. The Department of Energy has seen the country come off a peak of 60% of net oil imports to an expected 32% next year, and on a smaller number. That not only improves the trade deficit, but it also improves the current account deficit. This figure, which is measured in terms of a percentage of GDP, is expected to fall from nearly 3.6% of GDP down to 1.2% of GDP by 2020.

What all of these pressures mean is that globally, oil prices stabilize and U.S. costs fall. For example, in 2008, it’s estimated that we spent $216 billion on natural gas. BofA Merrill Lynch estimates that for 2012, that number had fallen to $76 billion, somewhat driven by the fact that high supplies of natural gas mean that the wholesale price in the U.S. is roughly one-third of what it is in both Europe and Asia.

From low energy prices come Chairman Ben Bernanke‘s bailout from the certain inflation mess he would create running the …read more
Source: FULL ARTICLE at DailyFinance

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El-Erian, the Fed's Inevitable Unwind, and Gold

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By Douglas Ehrman, The Motley Fool

GLD Chart

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In a recent interview, Pimco CEO and co-CIO Mohamed El-Erian said the Federal Reserve‘s ultimate exit from its current course of bond buying would be “one of the most challenging issues facing any central bank.” Over the past several years and indefinitely into the future, the Fed has amassed an enormous balance sheet’s worth of bonds that have allowed it to continue pumping the current $85 billion per month into the economy. While there are no signs that policy is about to change, when it does, the impact will be significant. Furthermore, when the central bank is ready to reverse that flow and start unwinding some of these purchases, the impact is hard to fathom.

Over an extended period, gold, as represented here by the SPDR Gold Trust , has been in a fairly stable uptrend. The Fed has been a direct impediment to the continuation of this trend, but keeping “risky” assets on the wanted path has left the entire economy overexposed. There is a fair argument that it’s premature to establish a gold position in preparation for the “big unwind,” when it comes, it’s hard to imagine that gold will go anywhere but straight up.

More from El-Erian
As a basis for discussing the current state of the market, El-Erian explained that he accepts that there are three conditions that must be understood:

  • The Fed will actively fight any meaningful sell-off in risk assets.
  • The Fed is driving other central banks to adopt a similarly aggressive stance.
  • Investors are willing to overlook real political concerns.

By understanding that these conditions are present in the market, you at least have a realistic chance of understanding the phenomena being observed. The Fed has maintained artificially low rates that have created a shift in investor behavior — the capital flowing into stocks, and helping to drive various indexes higher, is coming from cash and the money markets, not fixed-income securities.

El-Erian doesn’t see the Fed’s policy changing in the immediate term but recognizes the complexities that will be created when that day comes. “Unlike the past, we are much more structurally impaired as an economy,” he says. “We can walk; we cannot run yet. If we take away the stimulus, it’s not going to be quite the same.” The market and the economy have come to rely on the stimulus dollars so much that when that support is removed, the result will probably be severe. It’s times like these that the optimists begin to discuss a “soft landing.” Staying vigilant and protected is the best course of action.

How will gold react?
While the economy is in somewhat uncharted territory, you can begin to trace the likely results of the removal of the stimulus from this artificially created rally. There’s a growing consensus among economists that while inflation has apparently been averted for the time being, it’s firmly on the horizon. In his recent testimony before Congress, Chairman Ben Bernanke was quick to …read more
Source: FULL ARTICLE at DailyFinance

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Will Silver Move on U.S. Jobs Report?

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By Douglas Ehrman, The Motley Fool

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A stronger-than-expected U.S. jobs report on Friday adds one more to a list of competing factors that are struggling to give some direction to the silver market. The report, which showed that the economy added 236,000 workers last month, provides evidence that the economy is improving and was sufficient to drive the U.S. dollar index higher — two bearish factors for silver. With the deadline for sequestration cuts more than a week in the rearview mirror and the Federal Reserve still pumping $85 billion a month into the system, the bullish factors are represented as well. Silver, as represented by the iShares Silver Trust , exists in the vortex between all of these forces. While short-term volatility is likely to increase, the significant industrial demand for silver will couple with general economic weakness and should drive silver higher.

Is the employment picture really improving?
While the 236,000 number is a significant beat over the 160,000 that was expected, it still falls short of the 250,000 jobs that most economists believe must be consistently added if the employment picture is really to change. The overall unemployment rate fell from 7.9% a month earlier to 7.7%, representing the lowest reading since December 2008; numbers for the past two months were revised lower by 15,000, meaning that the previous two months were even weaker than expected.

The unemployment statistics and the calculated rate of inflation have become the two most criticized figures in economics, having been accused of poor methodology, miscalculation, and outright manipulation. Many, myself included, trust the anecdotal evidence we get by going grocery shopping or putting gas in our cars as evidence that prices are rising. While the CPI or PPI may be stable, if the goods that we’re most exposed to on a regular basis are getting more expensive, claiming no inflation is disingenuous to ignorant. Still, because the Fed has made clear that policy will be set based on these stats, knowing them and understanding them is a critical part of trading precious metals.

The Fed, and specifically Chairman Ben Bernanke, has made it clear that as long as the unemployment rate remains above 6.5% and inflation remains in check, the current course of quantitative easing will remain in force. The concern is that by the time inflation begins to show up in some of the statistics being used, there may be so much pent-up supply of capital that inflation will spike beyond what is easily manageable. This is not a certainty, nor is it a conspiracy theory or doomsday prophecy — just a legitimate concern.

The global influence
The positive surprise from the U.S. jobs number was sufficient to drive the U.S. dollar index higher by 0.9% on the news, as the yen and euro fell. A strong dollar has been an upside constraint for precious metals as dollar strength makes dollar-denominated assets alternative defensive plays to silver and gold. When the dollar is weak, investors looking for …read more
Source: FULL ARTICLE at DailyFinance

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The Biggest Threat to Apple's Share Price

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By Douglas Ehrman, The Motley Fool

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While Apple has faced its share of headwinds over the past few months, having slid 40% from its historic high above $700 per share last September, the company seems to still be facing some real challenges. There is a real concern among investors and industry-watchers that the company’s innovation rate has slowed significantly. Where Apple was once known not only as a technology leader but for its ability to remain focused on great projects, the company has become more reactionary, trying to compete with increasingly well-executed competition. Despite all of these issues, however, the single largest threat to Apple’s share price is the health of the overall market.

Historic levels for the Dow
Tuesday’s trading session has seen the Dow Jones Industrial Average break through all-time intraday highs, trading at levels not seen since 2007 and on pace to close above the record close set Oct. 9, 2007. Much of the run has been triggered by general optimism about the prospects for the economy looking ahead. The rise puts the index up over 8% so far this year and is marked by money moving into stocks. Reuters quotes Russell Investments’ Chief Strategist Stephen Wood, who admits the move is not totally supported by fundamentals: “There is a lot of momentum and rotation going into equities from cash and bonds, and right now sentiment seems to have the upper hand over fundamentals.”

While some disagree, many commentators attribute the rise to action of the Federal Reserve and Chairman Ben Bernanke. Recently, whenever the market has even paused for a breather, the Fed has aggressively pushed to keep the rally alive. Those who take a softer view see Bernanke’s actions as providing liquidity only, and not being a driving factor in the rise. In either case, the Fed has played a significant role in the process, suggesting that any major policy shift has the potential to be a blow to the overall market.

The skeptics point out that these types of peaks often precipitate significant declines; the October 2007 peak came before stock indexes were essentially cut in half. While market internals are solid, the psychological impact of these various factors should not be ignored. Even if the rally has some room to run, the dance between the Fed and the market should be watched.

The Google effect
Over the past several months, as Apple has languished, Google has surged to its highest level of all-time. Apple has stagnated to some extent, reporting its lowest growth statistics in recent memory, while Google continues to find growth and innovation. Though the connection itself may be coincidental, Apple’s troubles are certainly not hurting Google’s ability to fight higher.

Can we all have a little patience?
UBS analyst Steve Miluovich reiterated his buy rating on Apple Tuesday morning, setting a $600 price target, but warning that investors will need to be patient: “The only way out might be innovation in new categories, which will …read more
Source: FULL ARTICLE at DailyFinance