Others   

Fed Reserve's Semi-Annual Report (19/7)

1st, it was Greenspan, like to green and span the world to make it a green and better world to live with..Ya, then past d baton over to Ben...Err blurrnaanke, let hope he can do a better job then Span, my tot also for M'sia new Mahathrism new team as he has did past those old problem too long that sweep under d carpet, all credit for passing his baton to his out going M'sia PM.

teeth53      ( Date: 25-Jul-2006 09:06) Posted: This man has come to understand himself as a very powerful man that can move the world stock mkt and in US stocks as well, so he is a learned man, very fast learner and he now talk more in tune with mkt and not any how talk or to boost his own self esteem.

 

This man has come to understand himself as a very powerful man that can move the world stock mkt and in US stocks as well, so he is a learned man, very fast learner and he now talk more in tune with mkt and not any how talk or to boost his own self esteem.

 

NEW YORK (MarketWatch) -- If the financial markets told you to jump off a cliff....

There's more to being chairman of the Federal Reserve than analyzing economic data. You have to play the political game with Congress and the financial markets as well.

Former Fed Chairman Alan Greenspan was the master. His words may have been hard for you, me and Congress to decipher, but they were pretty clear to the markets. And if the markets veered off course a bit, Greenspan would get his troops to make the right comments to put them back on track.

The minutes of the Fed's meeting in late June indicated that they weren't sure whether interest rates were restrictive or accommodative. They also suggested that there was still a question about what was the bigger worry, inflation or growth. See full story.

The markets weren't sure either, until Bernanke's testimony to Congress last week. Now they have no more questions for the Fed chief.

Bernanke's purpose may have been to leave the Fed with some flexibility, but in effect, the markets have backed him into a corner. Whatever Bernanke was planning to do, or meant to communicate to the financial markets, is now irrelevant.

The markets believe a slowdown is coming, and mere words will no longer be enough to change the direction. Bernanke has to act by first ending the current cycle of raising interest rates, and perhaps even prepare for something a little more radical.

The Treasury yield curve is now inverted, meaning longer-term yields are below shorter-term yields. But more importantly for the Fed, the entire curve is below the overnight rate.

There's no clearer message than that: overnight rates are now restrictive, and economic growth is now a bigger worry than inflation.

Stocks knee-jerked sharply higher after Bernanke's first face off with Congress, when he said a slowing economy should help contain inflation. See Market Snapshot.

In the two sessions that followed, however, the Nasdaq Composite gave up more than it gained on Wednesday even though the odds of a rate hike in August, according to the fed funds futures market, fell from 65% late Wednesday to a low of 32% on Friday. Read more about rate hike expectations.

Don't think that because Bernanke follows the markets that he's no longer vigilant about fighting inflation. Basically, the market is telling Bernanke that he has already won the fight.

Bottom line, the yield curve has already jumped off the cliff. The Fed has to stop hiking before the economy follows.

Markets matter

Say what you want about the financial markets, but by virtue of their size, their opinions do matter. If the markets believe something will happen, they can bully the economy into fulfilling their prophecy.

But the markets aren't right just because they say so. They follow economic data very closely, but money flows even closer. And money has no pride or bias; all it ever wants to do is grow.

If you keep losing money betting on a normal, steepening yield curve, then it doesn't necessarily matter what the core inflation data is, the curve will invert.

The current inversion may be caused by some other unseen factors, but if it causes the market to believe in an economic slowdown, the slowdown will come.

Companies will be reluctant to assume growth, and stock up on inventory, when the majority of their peers and customers are worrying about deceleration.

And if banks can't make money on loans, because the relative cost of funding keeps rising, they won't feel the need to go out of their way to issue loans, and may start focusing more on making sure the ones they do make pay off -- in other words, a credit crunch. Read more about bank earnings and the yield curve.

We know that Wal-Mart customers have curtailed spending, but Target said so have theirs. Read more about Target here. Read more about the retail sector here.

The housing market isn't slowing, it has already slowed. The Philadelphia Housing Sector Index hit a 21-month low last Friday following disappointing results from two high-profile homebuilders. Read more about D.R. Horton and M.D.C. Holdings.

Advanced Micro Devices was supposed to be benefiting from Intel's company-specific woes, but AMD's latest earnings report suggests weakness is more widespread. Read more about AMD's results.

It's difficult to say if the expectation of a slowdown caused the slowdown, or the other way around, but does it really matter? Bernanke needs to defibrillate the markets' expectations.

There is some historical precedence for the Fed to placate the market.

When high-profile hedge fund Long-Term Capital Management blew itself up in the fall of 1998, the entire Treasury yield curve was below the overnight rate. Greenspan's Fed acted quickly by cutting rates a total of 0.75 percentage points in three months, in an effort to avoid a liquidity crunch and stabilize the financial markets.

There is one major difference between then and now. Back then, the yield curve was "normal" -- shorter-term yields were below longer-term yields, and had just been shifted below the fed fund rate. That means the economy was still expected to grow, but that the overnight rate was too high.

So in effect, the current situation is actually more dire. Not only is the fed funds rate too high, but the economy is also expected to slow. Basically, unless Bernanke changes the current course of interest rates, a recession is on the horizon.

No more questions, Bernanke. Just do what you have to do.

 

Bernanke sets stage for Fed pause, at some point , some good news is coming in from this man. Thk.

 

Still this Mr Bernanke is alot a learned man, instead of any how say, saying about wanted to contend inflation. He is more careful of what he can do to damage the whole world mkt economic just with his word, he realised that he is in deed a very powerful man.

 

wellwell...

Dun look things on its cover...

Trade with care!!!

 

Hope Benny speaks something positive today to the US congress ... cos Dow & Nasdaq down now.

 

At last!!! this time after so many round in d ring, he is in deed doing his job rite on d dot, well time to said his is alot more careful now, so in future expected to doing a fine job fine tuning US & world mkt economic.

 

Yes, in deed this man did it again. This time +ve news to DOW by up 212 pts liao or 1.96% to give senate a hint that thing R in control. SGX guess up by 80 points for a start & all green for today world index.

 

WASHINGTON (MarketWatch) -- Federal Reserve Chairman Ben Bernanke tried to calm the waters Wednesday.

Testifying on Capitol Hill for the second time in his short tenure at the Fed, Bernanke tried to assure markets and lawmakers that the Fed has a solid, long-term plan for the economy even in a climate of considerable uncertainty. See full story on the testimony.

He refused the tip his hand about whether the Fed would raise interest rates again, but he made it clear that the Fed wouldn't panic if inflation rates remained temporarily above the comfort zone for a while, as long as policies are in place that will eventually bring inflation back down.

The markets, of course, want to know with certainty how far the Fed will go and how long it will take to get there. But Bernanke would not provide any firm guidance.

"Monetary policy makers operate in an environment of uncertainty," he said. "In particular, we have imperfect knowledge about the effects of our own policy actions, as well as of the other factors" that shape the economy.

"The lags between policy actions and their effects imply that we must be forward-looking, basing our policy choices on the longer-term outlook for both inflation and economic growth," he said.

While acknowledging the unknowns, Bernanke seems confident that the Fed is on the right track. The Fed's projections for the next 18 months show a moderation in growth and a slow and steady decline in inflation.

"Overall, the U.S. economy seems poised to grow in coming quarters at a pace roughly in line with the expansion of its underlying capacity," he said. "Should that moderation occur as anticipated, it should help to limit inflation pressures over time."

The recent rise in inflation is a "concern," Bernanke said, but he noted that there's cause for hope that inflation can be contained.

Inflation has been largely due to higher energy and commodity prices, not to higher compensation costs. With oil prices expected to stabilize (remembering that no one can predict the future perfectly) and with high productivity holding down unit labor costs, the inflation outlook is not dire.

Inflationary expectations "have edged down and remain contained," he said. "The Fed must guard against the emergence of an inflationary psychology that could impart greater persistence to what would otherwise be a transitory increase in inflation."

Like a biblical prophet or a Zen master, Bernanke is trying to draw our focus away from the ephemeral present to the Big Picture.

The Fed cannot fine tune the economy in real time, and no one should expect the Fed to react to every up and down in the economic data or markets.

"We must take account of the possible future effects of previous policy actions -- that is, of policy effects still 'in the pipeline,'" he said. The Fed must also take account of not only what's the most likely path, but of what would be the consequences if the forecast goes wrong.

In the long run, we'll all be dead. Keynes said that. In the medium term, however, we'll be fine. Bernanke said that.

Rex Nutting is Washington bureau chief of MarketWatch

 

 

 

Careful. Let hope this man don any how talk ok ok liao.

 

"An upward surprise [an 0.3% rise in the core CPI] would close the door significantly further to the pause option, while a downward surprise [an 0.1% rise in the core rate] would leave it very much open," said Peter Hooper, chief economist at Deutsche Bank.

------------------------------------------------

Refer to above comment.

Core CPI is 0.3% as reported a while ago .... That means Fed will do another interest rate hike next month ... :(

 

Benny coming on in about 1 hour time .....Watch out!

 

WASHINGTON (MarketWatch) - Federal Reserve Chairman Ben Bernanke will do his best to keep from painting himself into a corner as he begins a report on monetary policy on Wednesday, but the June CPI report could close off his options before the policymaker even speaks, economists said.

The CPI data, to be released ninety minutes before Bernanke begins his two-day testimony, will be the key to whether the Fed will pause in August, economists said.

Right now, Wall Street economists expect the core CPI, excluding food and energy prices, to rise 0.2% in June. See Economic Calendar.

At the moment, financial markets believe there is a 70% chance of a rate hike in August.

"An upward surprise [an 0.3% rise in the core CPI] would close the door significantly further to the pause option, while a downward surprise [an 0.1% rise in the core rate] would leave it very much open," said Peter Hooper, chief economist at Deutsche Bank.

Luckily for Bernanke, he will be able to review the CPI report the night before he testifies to Congress.

Economists said Bernanke wants flexibility because the economy is at a turning point and even the central bank is unsure how many more rate hikes are needed.

"We're in a difficult situation. Inflation is still accelerating, but the economy is slowing," said Joel Naroff, president of Naroff Economic Advisors.

Bernanke will tell Congress only that "it depends" on the economic data where monetary policy should go from here, Naroff said.

If inflation continues to accelerate, the Fed may have to do more. If growth slows enough to keep inflation from picking up, the Fed may be able to do less, Naroff said.

Diane Swonk, said Bernanke has already succeeded in convincing markets that the Fed will pause at some meeting in the non-too-distant future, if not in August.

"Whether it is this meeting, the next meeting or the one after, the idea that we are no longer in 25 basis points-per-meeting mode has already been conveyed," Swonk said.

Bernanke will not provide more direction, but only "context" of the Fed's thinking

"His challenge is to be more Greenspan-esque and say less rather than more," Swonk said.

Greg Robb is a senior reporter for MarketWatch in Washington.

 

News coming .. Mr Benanke news Wed nite, hope is good liao. He learn very fast mem.. Wed nite Dow will be up, not DOWn, Cheongg...hahh

 

WASHINGTON (MarketWatch) - In the words of Ricky Nelson, it will be impossible for Fed chief Ben Bernanke to please everyone when he testifies to Congress on the economy and Fed policy next week.

Half of Wall Street is convinced that the U.S. economy is cooling off rapidly and the Fed should move to the sidelines after 17 straight rate hikes that has taken the Fed's target rate to 5.25%.

The other side believes, just as strongly, that the recent rise in inflationary pressure is likely the tip of an inflation iceberg, requiring a steady dose of further interest rate hikes into the 6% range.

Whichever way Bernanke tilts is going to result in criticism from the opposing camp.

"Wednesday could be a long day for the new Fed chairman," said Ethan Harris, the chief U.S. economist at Lehman Brothers.

"Bernanke bashing has become popular," Harris said.

Bernanke's first challenge will be to correctly diagnose the economy, according to Carl Tannenbaum, of LaSalle ABN-Amro Bank in Chicago.

"You have to wonder how much momentum the economy has going into the second half of the year," Tannenbaum said.

Fed officials have been upbeat about the economic outlook, but recent indicators, including retail sales, have been weak.

Bernanke will have to answer the question about whether inflation will settle down naturally or whether the Fed will need to continue to hike rates, Tannenbaum said.

The best guess of economists is roughly that Bernanke will suggest the economy is slowing down and this should help keep inflation low, but the Fed will remain vigilant.

Robert Brusca, chief economist at FAO Economics, said this would be the wrong signal to send with inflation risks swirling around.

"The stock market wants him to sound open-minded to pausing. I want to hear him say that the Fed has to get inflation under control and the economy will take care of itself," Brusca said.

Other economists say enough is enough.

"The 70% of the U.S. economy known as consumer spending is buckling," said David Watt, an economist for BMO Nesbitt Burns. "Now, if only Chairman Bernanke could convince the market that a pause is not a sign that he is a wimp when it comes to fighting inflation."

Mike Moran, chief economist at Daiwa Securities America, said the market may make up its mind about the immediate course of interest rates based on the consumer price index data that will come out 90 minutes before Bernanke testifies to Congress.

If the core CPI rises by a tenth, the market will believe the Fed is on hold at its next meeting on Aug. 8. A reading of 0.3% in the core CPI would guarantee a rate hike in August, while an increase of 0.2 tenths is a "grey area," Moran said.

---------------------------------------------------------

Well ... at least we have something (positive) to look forward to next week - aside the mid-east violence & high oil price, which are 'killing' the stock markets worldwide.

I think our good buddy Benny Boy is more matured now and will say something positive to boost the market in view of the current suitations. If he mess it up like he did previously in his earlier speeches, other good buddy Bush will look bad ya.