Posts Tagged ‘Federal Reserve’

Fed chair: Not much Fed can do right now to help world economy

In Economy, Financial competency on 25/08/2019 at 10:55 am

In addition to the Fed’s focus on balancing inflation against employment, Federal Reserve chair Jerome Powell is dealing with two other sources of stress. Investors have been critical of how he communicates policy and The Donald has been demanding, more aggressive by the day, for more monetary accommodation via interest rate cuts and quantitative easing.

Powell has juz given Trump the finger.

Powell has now called the current era of Fed history the “emerging new normal”, and said it offered three challenges: low inflation, financial risks, and how the Fed can support economic growth when interest rates are already so low. The Fed, he added, “faces heightened risks of lengthy, difficult-to-escape periods in which our policy interest rate is pinned near zero.”

How to support economic growth when interest rates are already so low is an important question for central bankers all over the world. They had gathered in Jackson Hole, Wyoming, to among other things, discuss whether policy rates have any effect on the real economy.

With his historical timeline, Mr Powell offered an answer to both. The current era of slower growth, downward pressure on inflation, and lower interest rates is the consequence of long-term trends. And there is not much the Fed can do right now to help.

It’s a very pessimistic (and hawkish: nothing much can be done) speech.

Here’s how the Economist put it

He spoke of the difficulty the Fed faced in assessing and responding to Mr Trump’s trade war. And he mentioned that if interest rates globally remain near zero, then central banks may need new policies. But on the subject of the moment—what the Fed will do next—he gave little away. “We will act as appropriate to sustain the expansion, with a strong labour market and inflation near its symmetric 2% objective,” he said.

Mr Powell may have felt he could say little more, given the disagreement within the Fed. But both the recent minutes and the speech today devoted more words to the possibility that low rates might contribute to financial instability than has recently been the norm in the Fed’s discussions. That may be a sign of more determined opposition to additional easing than recognised hitherto.

And btw, Trump’s not that dumb

At least one observer felt the hawkish overtones of the speech to be crystal clear. “As usual, the Fed did NOTHING!” Mr Trump tweeted after Mr Powell’s remarks. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” The president thus cast a longer shadow than the Tetons over the day’s events.

How all this impacts us:

S’pore: the canary in the coalmine/ Is the ground sweet for the PAP?

Latest “bad” economic data is really “gd” news for PAP

“Only cold spell coming, but not Winter,” says Heng

Ground is not sweet economically/ Authorities may have to do something but no gd options

Trump is bad news for S’porean mortgagors and property prices

In Economy, Financial competency, Property on 08/12/2016 at 4:36 am

As stated here, The Donald’s warning to US companies to manufacture in the US will only help accentuate two interconnected secular trends that are no good for S’pore’s growth prospects: slower global trade caused in part by onshoring (companies making more products locally).

Slow growth not good for property prices.

Next, Trump wants US cos to repatriate their money overseas (US$1trn is a conservative estimate) to make America Great Again. He’ll offer tax concessions in return.

According to a FT report, the repatriation of billions of dollars of overseas corporate deposits could rattle the global money market, where they constitute an important part of the offshore funding base: think Libor and Sibor.

This will affect S$ interest rates, causiing them to rise further then expected because of Fed actions.

Finally, with a fiscal stimulus in the US, Fed be more prepared to raise US rates. This will affect S$ interest rates, causiing them to rise.

So the vultures are circling and the Singkies with housing loans up to their eyeballs (if car loans and personal loans are included, up to their eyebrows) had better watch out. We’ll be joining Perth.

Will the 70% still vote PAP?

Fed to market: “Go ahead, make my day”

In Currencies on 30/08/2016 at 3:05 pm

The Fed is itching to pull the trigger like Dirty Harry was ready to use .44 Magnum revolver

NYT Dealbook reports:


The Case for an Interest Rate Increase
The Federal Reserve looks like it will probably raise rates in the coming months. “In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” said Janet L. Yellen, the Fed’s chairwoman, said after last week’s annual policy conference at Jackson Hole.
Although the Fed is likely to consider a move at the next meeting, in September, many expect action to come in December, after the presidential election.
Some officials remain nervous about fragile growth, and there are questions about how the Fed could combat downturns in the future. If interest rates are not raised as much as during other periods of growth, they cannot be cut as much during downturns. Officials also remain skeptical about using negative rates.
“Central banks still have arrows in their quiver [although] they may not be as effective as they were before the crisis,” Randall Kroszner, a former Fed governor,told The Financial Times. But, he pointed out, “central banks can’t simply create growth.”
Still, perhaps they will take the advice they received from Christopher A. Sims, a Nobel laureate in economic science. What is that? Stop. You’re making things worse.
Mr. Sims argues that central banks need to say publicly that more government spending is required to stimulate economies. “So long as the legislature thinks it has no role in this problem, nothing is going to get done,” he said.”

What are the biggest risks to financial markets?

In China, Commodities, Financial competency on 23/05/2016 at 10:52 am

Or “China kua kee”. See that deflation is also a major concern. Commodity price movements are “peanuts”

But notice was missing? Nothing on that gorilla in eoom? The Fed.

Here we go again

In Currencies, Emerging markets on 19/05/2016 at 6:01 pm

Fed Is Seriously Considering Raising Interest Rates in June, Meeting Minutes Say The central bank sent an unusually frank message to Wall Street, delivered in the official account of the Fed’s April meeting.

When China went to the Fed for help

In Uncategorized on 23/03/2016 at 10:24 am

Goh Meng Seng and Uncle Redbean will never tell u this: even China needs the Fed’s help.

NYT Dealbook reports

How China Asked the Fed for Its Stock Crash Playbook Confronted with a plunge in its stock markets last year, China’s central bank reached out to the Federal Reserve, asking it to share its playbook for dealing with Wall Street’s “Black Monday” crash of 1987.


In Uncategorized on 21/03/2016 at 9:55 am

According to NYT Dearbook only 0.5% on the cars, not 1%. Mortgagors and property developers can relax. Interest rates will remain lowish.

The Federal Reserve voted not to raise its benchmark interest rate because weakness in the global economy could affect domestic growth, Binyamin Appelbaum reports in DealBook.

It had been expected to increase this month, but instead pulled away from its December prediction that the rate would go up by one percentage point this year. Fed officials now expect to raise rates by just half a percentage point this year.

Janet L. Yellen, the Fed’s chairwoman, maintained that the central bank remained relatively optimistic about the economy, in which there were no signs of damage from the wobbles of financial markets in the rest of that world.

Ms. Yellen did note that continued weakness in global growth and aggressivestimulus campaigns from other central banks could weigh on domestic growth, for example by strengthening the dollar. She added that financial markets are doing some of the Fed’s work, with tighter financial conditions like increased borrowing costs for corporations.

Why markets are panicking

In Financial competency on 12/02/2016 at 12:24 pm

They now assume that central banks don’t have a clue on how to save the world

What we are seeing, I think, are safe-haven flows. What is causing them, I believe, are central bank actions that undermine market confidence in the belief that central banks will do “whatever it takes”, in Mario Draghi’s phrase, to prevent economic collapse. The loss of faith is clearest in Europe, where Mr Draghi felt pressure to speak publicly on several occasions after the December meeting, in order to clarify that it did not represent a step in a less interventionist or more hawkish direction, and was not an indication of internal dissent over the course of policy. Crucially, those statements did not reverse the damage done by the December meeting. …

The Fed seems to have done something similar to its own standing, through the simple act of moving to tighten while both inflation and inflation expectations remained well below target. Just as Mr Draghi’s saying “whatever it takes” again cannot generate the same boost to confidence as it did the first time around, a simple reversal of the Fed’s December rate increase would not restore the market’s faith in the Fed to where it was a year ago. The Fed would need to do more, just as other central banks that raised rates away from zero prematurely found themselves subsequently cutting rates to levels below where they had stood before. Likewise, the Bank of Japan’s sudden pivot to negative rates raises the possibility that the central bank doesn’t actually know what it is doing.

Faith in central banks is of critical importance now because conventional policy is exhausted. To provide additional monetary stimulus, central banks can only turn to negative rates, to quantitative easing, or to jawboning of markets. It seems to me that, as a result of central-bank missteps, markets are losing confidence that central banks know what they’re doing, and are losing confidence that central banks are prepared to do what it takes to convince sceptical investors otherwise. Unless and until there are adequate demonstrations, it is possible this market panic will continue.

What is especially worrying is that not too much needs to go wrong in the real economy for things to begin breaking …

Fed officials hawkish abt Dec rate rise

In Economy on 17/11/2015 at 1:34 pm

NYT Dealbook

SEVERAL FED OFFICIALS READY TO RAISE RATES Federal Reserve officials are turning from the question of whether to act to how quickly to raise rates afterward, Binyamin Appelbaum reports in The New York Times.

William C. Dudley, the president of the Federal Reserve Bank of New York, had been hesitant about raising rates, but said on Thursday that there was a stronger case for moving ahead. Stanley Fischer, the Fed’s vice chairman, also suggested there was no reason to keep holding rates down.

Mr. Dudley is an influential adviser to Janet L. Yellen, the Fed’s chairwoman, and his shift reflected the tentative consensus among Fed officials that the time has come to raise the benchmark rate.

Investors and analysts now consider an increase in December all but certain. Borrowing costs have already started to rise in anticipation.

Stocks in the United States fell the most in six weeks as investors braced for the expected rate rise. The fall was also driven by a rout in commodities, which put energy and raw-materials providers under pressure.

The Standard & Poor’s 500-stock index and the Dow Jones industrial average both slipped 1.4 percent, while the Nasdaq composite index was down 1.2 percent, Bloomberg reports.

Commodity prices tumbled as the stronger dollar and a persistent slump in demand from China dampened a rebound after the summer. Brent crude closed below $45 a barrel on Thursday, while West Texas intermediate slipped below $42 after OPEC warned about the growing oil glut. Copper hit its lowest price since July 2009.

Europe and Asia joined the slide as European equities slipped to three-week low, The Financial Times reports. The FTSE Eurofirst 300 opened 0.3 per cent lower after the Shanghai composite dipped 1.4 percent, Australia’s resources-heavy S.&P./ASX 200 index dropped 1.5 percent and the Nikkei 225 slipped 0.5 percent.

Ms. Yellen has said that she expected to raise rates by about one percentage point a year, but forecasts submitted by Fed officials indicate a divergence in predictions for the benchmark rate at the end of 2016 varying from -0.1 percent to 2.9 percent.

Charles L. Evans, president of the Federal Reserve Bank of Chicago, said he was focused on pressing for rates to rise slowly, while Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, said he would prefer a slightly rapider rate of increase than one percentage point a year.

Tighten yr belts mortgagors

In Economy, Financial competency on 05/11/2015 at 1:20 pm

Enjoy Deepavali but be prepared to suffer during Christmas, New Year and CNY. Interest rates are likely to go up.

Just over a week ago when I wrote this,  interest rate futures implied less than a 3o% chance of a tise by the Fed in December (markets didn’t think the Fed would raise), whereas the odds were close to even (could go either way) yesterday morning our time. Then in NY time, interest rate futures moved to price in a 58% possibility of rate “lift-off” occurring in December, up from 50% earlier in the day. Chairman of Fed said December would be a “live possibility” for a rate rise if incoming data supported that expectation.

Fed is the real hegemon/ How Chinese problems impact the US

In China on 21/09/2015 at 1:07 pm

Officials in China and Indonesia criticised the Fed for keeping the world guessing about its next move after it delayed raising rates.

Fed juz showing China that it’s the world’s hegemon just before Xi visits the US:

NYT Dealbook reported that the Fed stressed that it needs a little more reassurance from the United States economy and “What we can’t know for sure is how much concerns about the global economic outlook are drivers of those developments,”

Janet L. Yellen, the Fed’s chairwoman, took care to point out that the Fed was not just responding to a few rough weeks for the stock market, Neil Irwin writes in The Upshot. It needs a little more reassurance from the United States economy. “What we can’t know for sure is how much concerns about the global economic outlook are drivers of those developments,” she said.

The challenge now is that 2015 may end without providing answers to the questions that the policy committee has. It can take many months for financial swings to ripple through the economy.

Stanley Fischer, the Fed vice chairman, said last month that if the Fed waits until it is absolutely certain it is time to raise rates, it will probably be too late. Fed officials will still have to make a decision based on their own forecasts, rather than hard evidence.

This is also from NYT Dealbook (some time) back explaining why problems in China affect the US.

FAULT LINES REACH THE U.S. ECONOMYAs investors scramble to make sense of these swings, financial experts said there have been signs of an equity crisis for more than a year now, Landon Thomas Jr. reports in DealBook. They argue that the United States would only be able to avoid for so long the deflationary forces that have taken root in China.

More and more analysts now see the problems in China and other markets as a real threat to the United States economy. The fears about the economy have some investors betting that the Federal Reserve will not raise rates this year, though that may well be premature, as Binyamin Appelbaum reports.

“The global G.D.P. pie is shrinking,” said Raoul Pal, who produces a monthly financial report catered to hedge funds and other sophisticated investors. The most crucial indicator, in his view, has been the surge of the dollar against emerging market currencies.

Historically, the party has ended when the dollar takes off against emerging market currencies, as it did in Latin American in the 1980s and Southeast Asia in the 1990s. Suddenly, loans in relatively cheap dollars that financed real estate and consumption booms were no longer available and theultimate result was always a growth slowdown.

Through the year ending on Aug. 19, some of the worst-performing investments in dollar terms were Brazilian equities, Russian bonds, Indonesian equities, and Turkish equities.

During the same period, United States equities returned 8.7 percent – the fourth best return delivered by any major class of assets. In effect,investors in the United States miscalculated, thinking that what happened in Russia, Turkey and Indonesia need not have any effect on stocks of companies based in the United States. The slowdown in China was driving weakness in these countries, as it bought less steel from Brazil, less mineral fuel and oil from Indonesia.

Albert Edwards, a strategist at Société Générale in London, said the government’s naked support of the stock market bubble was a clear sign for him. “One you encourage an equity bubble, it will collapse – and then you are really in trouble,” Mr. Edwards said. “This is utter madness.”

For Jeffrey Sherman, a portfolio manager at the bond investment firm DoubleLine, the correction in the high-yield corporate bond market was an alarm bell. In summer 2014, as stocks of United States companies continued to push upward, the yields on risky corporations started to spike. The fact that these bonds were entering their own bear market should have been seen by equity investors as a warning sign, Mr. Sherman said.

David A. Stockman, a former budget director under Ronald Reagan, has spent the last three years closely examining the excesses of the Chinese investment boom and warning of their consequences. He points out that in the late 1990s, China had the capacity to manufacture 100 million tons of steel. That figure today is 1.1 billion tons – almost twice the amount of annual demand for steel in China.

This steelmaking boom sent the price for iron ore shooting up. Like all commodity prices, it has fallen sharply, a correction that creates problems for iron ore-producing countries like Australia, which made huge investments to keep supplying these raw materials to China.

The bottom line though, is that investors in American stocks recognized too late in the game that a global contraction was sneaking up on them, Mr. Thomas writes.

Keep keep on worrying

In Currencies, Economy on 18/09/2015 at 1:28 pm

So the Fed didn’t raise rates: Rather than looking simply at the domestic economy, the Fed is now taking notice of global developments. But that makes it harder for investors to assess which data to monitor and when the Fed will consider the global backdrop has improved. Further volatility is probably ahead.

The good news for mortgagees is that a weaker US$ against S$ may ease the pressure on interest rates. But don’t count on interest rates coming off significantly fast or soon. The trend for SIBOR etc is still upwards.

A hike is still on the table before the end of the year. Fed Chairwoman Janet Yellen said that was still the majority view of the Federal Open Market Committee members – the group responsible for setting US interest rates.

Will mortgagees be repenting? Property prices will fall further

In Economy, Property on 17/09/2015 at 4:55 am

On Monday SIBOR rate was up to 1.131%, a seven yr high, up 5.3%  up on the week before abd 147% since 2 January before.

Rising borrowing costs and a weaker currency bode ill for Singapore’s home prices amid their longest slide in more than a decade.

The three-month Singapore interbank offered rate has more than doubled in a year to the highest since 2008. The main benchmark for housing loans is seen rising further as it narrows the gap with the swap offer rate, a measure of borrowing costs influenced mainly by exchange-rate expectations. The spread reached the widest since 2009 as the Singapore dollar slumped 6.3 percent this year.

“If the Sibor catches up with the SOR in the next three to six months, that premium may be eroded and we will get further softening in property prices,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “Buyers are going to factor in rate increases, so a further price correction is difficult to avoid.”

House prices may drop as much as 5 percent this year, set for the biggest decline since 2001, according to brokerage Knight Frank LLP. Developers are already grappling with falling values and lower sales after the government began introducing curbs on residential transactions as low rates and demand from foreigners prompted concerns that the property market was overheating. (Note the Bloomberg report was last week  but the analysis for property prices and interest rates still stands.

SOR which is used for commerial property loans was up to 1,561% also the highest since lat 2008; 108% up since 2 Jan 2008.

Pricier money could also be bad both for indebted companies, Reits (they are leveraged more than the average cat,  and stocks in general.

And this is all because there’s a 28% chance the Fed will raise rates later today.
So if the Fed raises rates there could be serious problems as a probability becomes a fact:

Even if the Fed has been shouting to the world that rates will rise soon, it cannot be certain that evasive prophylactic action has been taken from Brazil, to Turkey, South Africa and Malaysia. Accidents will happen on the fateful day that the target for Fed Funds rate is lifted, if only by a smidgeon.

And there is no market oracle who can be wholly confident these accidents will be small whoopsies rather than clanging calamities.

One more thing – psychology matters.

As Haldane of the Bank of England has pointed out, we all still bear the emotional scars of the 2008 financial and economic catastrophe.

Who knows quite how anxious we will feel when confronted with the harsh reality that interest rates can rise as well as fall?

Why these fears of accidents, psychological damage?

.. a huge amount of cheap credit poured into economies all over the world. It has fuelled investment by businesses. It has been used to buy properties and shares. And it has spurred growth and significant – perhaps excessive – rises in the price of assets.
And of this $9.6tn, more than $3tn had been borrowed by companies and other institutions in emerging economies.

So here is the vice squeezing the half of the global economy represented by emerging economies.

On the one hand, the fall in commodity prices and the slowdown in China is undermining their growth. On the other, the cost of servicing their dollar-denominated debts is rising, because the dollar is strengthening on the expectation that interest rates will rise.

And more than that, the tap of cheap dollar funding is gradually being turned off, which means that the flow of money to these economies has been cut – and by more than just the value of reduced dollar lending, because dollar loans often sit on balance sheets and in banks, and are used to make additional local-currency loans.

But even if the Fed doesn’t raise rates, interest rates will trend higher because the Fed wants to raise rates. Come Nov, Dec, we will have the same uncertainity. Best if it raises rates, and tells us that it’s all over for the time being?

Note this post has been edited since first posting.

Why a Fed rate hike tom is so feared

In Currencies, Economy, ETFs on 16/09/2015 at 10:27 am

The rise in inter-bank rates (which impacts mortgage rates) here is part of the chain effect of fear of a Fed hike. The mkt believes that there is a 28% chance that the Fed rate will go up i.e, 70%8 believes it won’t be raised tom. So if it goes up and markets tank read this

Why financial markets are nervous about Fed’s decision tom (from NYT Dealbook).

INVESTORS HOPE FOR SMALL RIPPLES AHEAD OF FED RATE DECISION On Thursday, the Federal Reserve could increase interest rates for the first time in more than nine years. It may still hold after a violent downturn in global stock markets last month, but this moment has long been dreaded on Wall Street, and investors are hoping it won’t unleash too much turmoil, Peter Eavis writes in DealBook.

History shows that booms financed with cheap money often leave the financial system weaker, not stronger, and the fault lines become obvious when the Fed starts to tighten monetary policy.

In theory, a small increase in interest rates should not be enough to wreak havoc, but some analysts have a darker view of the weak links in the system. They say financial markets have funneled trillions of dollars intoinvestments that will prove unsustainable when interest rates go up.

And the signs of excess are everywhere. Technology companies have been able to raise huge sums even before they tap into the public markets. Debt markets have appeared overly eager to lend. Low interest rates mean investors more willing to buy stocks at historically high valuations and companies are able to borrow money cheaply to buy back their own shares and bolster earnings.

Doomsayers think these activities have continued for so long that companies are more vulnerable to a slight increase in interest rates.

However, even gloomier analysts have predicted a great reckoning for years and it has not yet happened, Mr. Eavis notes. The new restraints on Wall Street and the housing market have so far prevented a resurgence in the toxic real estate lending that occurred a decade ago.

Corporations’ borrowing costs are no cheaper when accounting for inflation. Since the end of 2008, the average, inflation-adjusted yield on corporate bonds of moderate credit risk has been 4.1 percent, compared with 3.94 percent for most of the postwar period.

The Fed’s policies also appear to have prompted a surge in lending that is more stable than the securities markets under higher interest rates. Buybacks are not certain to become less attractive, but if they do, it might prompt executives to invest spare capital in operations in an effort to increase productivity.

Yet fears about the markets themselves remain. High-frequency trading has ballooned over the last decade. Firms using automated trading account for about half of all trades in the market for Treasury Securities. Exchange-traded funds are a major force in the stock market.

E.T.F.s, whose shares are supposed to be closely tied to the value of their underlying assets, have created concerns recently. On Aug. 24, shares in some funds briefly fell to prices well below the value that they would have commanded had they stayed in line with the fund’s underlying holdings. An investor selling at that discount might take an unnecessary loss.

If heavy selling is widespread across many markets, the smooth functioning of these products and markets may be tested.