Posts belonging to Category FED

Fed’s Powell Pledges to Maintain Economic Support

Powell sees no interest rate hikes on the horizon

Federal Reserve Chairman Jerome Powell affirmed his commitment to keeping interest rates low for the foreseeable future even as he expressed hope for a strong economic recovery. “When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon,” the central bank chief said Thursday during a Q&A session presented by Princeton University.

During the wide-ranging discussion, Powell spoke about how the Fed handled the challenges brought on by the Covid-19 pandemic as well as his expectations for what is ahead. In its most recent policy statement, issued in December, the policymaking Federal Open Market Committee said it would keep an accommodative stance until it sees “substantial further progress” toward its employment and inflation goals.

On the employment mandate, Powell stressed the Fed’s new approach to inflation in which it will not raise rates even if unemployment falls below levels that historically would have been considered a warning sign for pricing pressures ahead.

Bitcoin poses no threat to the dollar as the world’s currency leader

Central banker Bullard expressed concerns about the proliferation of privately issued digital currencies

St. Louis Federal Reserve President James Bullard told CNBC on Tuesday he believes increasing interest in bitcoin does not pose a serious threat to the U.S. dollar as the world’s reserve currency.

“I just think for Fed policy, it’s going to be a dollar economy as far as the eye can see — a dollar global economy really as far as the eye can see — and whether the gold price goes up or down, or the bitcoin price goes up or down, doesn’t really affect that,” Bullard said on “Squawk Box.” 

Bitcoin, in particular, has been championed by crypto bulls as a store of value that can be used to hedge against inflation or the debasement of fiat currencies like the dollar. Some have touted it as “digital gold.” In addition, bitcoin and other cryptocurrencies also present themselves as a way to buy goods and services like actual money.

Facebook hopes the cryptocurrency it backs will launch in 2021

Facebook should be given the “benefit of the doubt” by regulators in its ambitions to launch the cryptocurrency it backs and its digital wallet, the head of the company’s financial services arm said on Monday.

David Marcus, the head of Facebook Financial, also known as F2, said he hopes both the cryptocurrency called Diem and the social networking firm’s wallet Novi will launch next year. The cryptocurrency was initially called Libra and was designed to be managed by a non-profit consortium consisting of several companies called the Libra Association. Facebook had planned to launch a wallet called Calibra that would allow users to send this cryptocurrency to each other.

One Libra coin was initially supposed to be backed by a basket of currencies. But regulators raised a number of concerns from the impact Libra could have on financial stability to issues over data privacy and money laundering. In April, the Libra Association scaled back plans and said it would offer stable coins backed by just one nation’s currency, rather than a single coin backed by several currencies.

U.S. dollar’s future as global reserve currency in jeopardy

 U.S. response to the pandemic could debase the dollar

The dollar’s decades-long position as the global reserve currency is in jeopardy because of steps the U.S. has taken to support its economy during the COVID-19 pandemic, according to Ray Dalio, founder of hedge fund giant Bridgewater Associates.

While equities and gold benefited from the trillions of dollars in fiscal spending and monetary injections, those efforts are debasing the currency and have raised the possibility that the U.S. will go too far in testing the limits of government stimulus, Dalio said Tuesday in an interview with Bloomberg Television.

“There is so much debt production and debt monetization,” Dalio said.

Global Liquidity Surge to Boost Stocks and Bonds

Growing debt levels worldwide

Extremely loose monetary policy will be required for a long time to support growing debt levels worldwide, buoying liquidity along with global equity and bond prices, according to JPMorgan Chase & Co.

“More debt, more liquidity, more asset reflation,” was the conclusion strategists including Nikolaos Panigirtzoglou, who forecast a $16 trillion increase in worldwide debt this year that would push the combination of private and public sector borrowing to a record high $200 trillion by year-end.

That will lead to higher savings rates, very accommodative central bank policies and more cash in the system — the bulk of which may find its way into the global stock market, they wrote in a note Friday.

Fed soothes recovery worries

Wall Street closes higher

Wall Street closed higher on Monday following an announcement by the U.S. Federal Reserve regarding its corporate bond purchasing program that boosted investor confidence, which had been wavering amid a spike in new COVID-19 cases.

All three major U.S. stock indexes reversed losses in afternoon trading, following the Fed’s decision to apply an indexing approach to its secondary market corporate credit facility to create a more diversified portfolio.

“No doubt the market liked it: Who doesn’t like more cake and ice cream?” said Robert Pavlik, chief investment strategist, senior portfolio manager at SlateStone Wealth LLC in New York.

Paul Krugman says we are ignoring a ‘huge fiscal time bomb’

Relief is insufficient

The current crisis is not a replay of the Great Recession, according to Krugman, but there will be a second wave that will be if we don’t act forcefully enough now. The Nobel Prize-winning economist says it is important to realize that legislation around coronavirus is not a stimulus bill, it is mostly a disaster relief bill.

He says it is good for the most part but will probably need to be bigger, maybe as large as four or five trillion dollars. He explains that there is a “huge fiscal time bomb” that is not getting enough media coverage. He warns that just as the economy is ready to recover there will be mass layoffs of government employees and a cutoff of unemployment benefits, unless there’s another major round of legislation.

Trump pushes Congress for new coronavirus spending

Senate mulls second emergency bill

Than U.S. President Donald Trump’s administration pushed lawmakers to send money directly to Americans to counter the economic toll of the coronavirus outbreak, as the Senate weighed a multibillion-dollar emergency bill passed by the House of Representatives.

Treasury Secretary Steven Mnuchin was poised to meet with Senate Republicans to discuss a plan to send checks to Americans affected by the crisis, and Trump told reporters the payments could amount to $1,000.

The Republican president’s tone on the coronavirus pandemic has changed sharply in the past few days. After initially playing down the threat of the outbreak that has spread rapidly across the United States, killing at least 95 people, his administration has begun pushing for urgent action to stem the disease’s economic toll.

The administration was talking about a new stimulus package of around $850 billion, one U.S. official said, speaking on condition of anonymity. It would be the third coronavirus aid plan to be considered by Congress just this month. Trump signed the first $8.3 billion package to battle the coronavirus on March 6.

Fed slashes rates

Global central banks coordinate to cushion coronavirus blow

The U.S. Federal Reserve and global central banks moved aggressively on Sunday to buttress a world economy unraveling rapidly amid the coronavirus pandemic, with the Fed slashing interest rates to near zero, pledging hundreds of billions of dollars in asset purchases and backstopping foreign authorities with the offer of cheap dollar financing.

The coordinated global actions were reminiscent of the sweeping steps taken just over a decade ago to fight a meltdown of the global financial system, but this time the target was an entirely unfamiliar foe – a fast-spreading health crisis with no certain end in sight that is forcing entire societies to effectively shut down.

In a news conference Federal Reserve chairman Jerome Powell said the epidemic was having a “profound” impact on the economy, forcing whole industries like travel and leisure offline. Yet the ultimate spread of the virus is so uncertain, Powell said, the Fed called off quarterly economic forecasts due this week as a futile exercise until it is clear how many people will get sick, and how

Fed cuts rates to blunt coronavirus impact

Markets drop

The U.S. Federal Reserve cut interest rates on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus, but the emergency move failed to comfort  financial markets roiled by worries about a deeper, lasting slowdown.

Fed Chair Jerome Powell reiterated his view that the U.S. economy remains strong, but said the spread of the virus had caused a material change in the U.S. central bank’s outlook for growth.

“The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Powell said in a news conference shortly after policymakers unanimously decided to cut rates by a half percentage point to a target range of 1.00% to 1.25%.

Trade risks easing may mean bluer sky for 2020

FED thinks risks begin to ease

The global trade wars may not be over, but U.S. Federal Reserve officials on Thursday said the economy may have weathered the worst of it as risks begin to ease and businesses adjust to a new trade environment.

In separate speeches and interviews, Fed policymakers, including Vice Chair Richard Clarida, were uniform in saying that developments like expected ratification of the new U.S.-Mexico-Canada trade agreement and next week’s intended signing of an initial U.S.-China trade deal have made them more confident about the economy in the year ahead.

“There are some indications that headwinds to global growth may be beginning to abate,” Clarida said in remarks at a forum in New York. The Fed’s three “well-timed” rate cuts last year have been “providing support to the economy and helping to keep the U.S. outlook on track,” he said.

Are US interest rates going negative?

Ron Paul: “the Fed can’t stop it”

Ron Paul is warning negative interest rates will crush the global economy. The former Republican congressman from Texas believes the U.S. won’t be the exception.

“We will join the rest of them and go to total negative rates in hopes that that will be the solution,” he told CNBC’s “Futures Now” on Thursday. “We’ve never had as many currencies in negative interest rates. $17 trillion worth of bonds [are] in negative interest rates. It’s never existed before. And, that’s a bubble. So, we’re in the biggest bond bubble in history, and it’s going to burst.”

Paul, a former presidential candidate and vocal libertarian known for his economic and stock market bubble warnings, contends the Federal Reserve’s policies are powerless in this environment. He doesn’t believe this week’s Fed meeting will provide any kind of relief and cutting rates will not be the answer.


Is a global recession coming?

Seven warning signs

The global economy is heading into recession. At least that is the fear after months of warning signs from the engine of global trade, which has spluttered this year. Here we examine seven clues that the trend, after 10 years of expansion, could be backwards.

Eighteen months ago Donald Trump began his “America first” campaign with a fight over steel dumping. The US president imposed 25% import tariffs on steel against China, the EU, India, Canada and Mexico.

Since then the focus has all been on China. Trump blamed Beijing for undercutting US goods with an undervalued currency. As a punishment he imposed import tariffs on a wide range of Chinese goods and has threatened to expand the scope to include computer games consoles, mobile phones and laptops. It’s difficult to measure the impact, but most countries report a downturn in trade since the tariffs began to bite.

US deficit to hit $1 trillion for 2020

An unstainable course

The Congressional Budget Office raised its estimate of the projected federal budget deficit Wednesday and is now predicting that the deficit will reach $960 billion for the 2019 fiscal year, which ends on September 30, and reach $1 trillion for the 2020 fiscal year.

The CBO had previously estimated a $896 billion deficit for 2019 and $892 billion for 2020. The Treasury Department reported earlier this month that the US budget deficit has already hit $867 billion for the first 10 months of the fiscal year, an increase of 27% over this time last year.

“The nation’s fiscal outlook is challenging,” said Phill Swagel, director of the CBO. “Federal debt, which is already high by historical standards, is on an unstainable course, projected to rise even higher after 2029 because of the aging of the population, growth in per capita spending on health care and rising interest costs.”

Trade war escalation nudges U.S. closer to recession

Federal Reserve to cut rates again in September

The recent escalation in the U.S.-China trade war has brought forward the next U.S. recession, according to a majority of economists polled by Reuters who now expect the Federal Reserve to cut rates again in September and once more next year.

Despite expectations for further easing, the Aug 6-8 poll gave a median 45% probability of the U.S. economy slipping into a recession in the next two years, up from 35% in the previous poll and the highest since that question was first asked in May 2018.

A closely-watched bond market gauge of U.S. recession risk flashed its biggest warning since March 2007 on Monday, underscoring concerns the spillover from the battle between the world’s two biggest economies over trade will accelerate a global downturn.