Federal Reservations

The Fed chairman said the central bank has the tools to provide more support to the sluggish U.S. economy, but declined to say whether it's prepared to use them at its next meeting.

Originally from WSJ.com: Economy

Bud Conrad, Casey Research Writes: The Fed surprised the market by extending its policy of 0 to 0.25% Fed funds rate to mid-2013. The way the Fed manages to drive rates lower is to buy Treasuries with newly created money – driving the price up and the rates down. The big question is whether the policy will have a sizeable effect on markets. The chart below shows the historical jump in the Fed’s combined policy tools that were used to lower rates and bail out financial institutions through a variety of programs. These include the big purchase of mortgage-backed securities (MBS) called QE1 and the large purchase of Treasuries called QE2.

Originally from The Market Oracle

It used to be that when the Fed Chairman spoke, the market listened; but the Chairman has lost his mystique.  Now when the market speaks, politicians listen.  Hopefully they heard what the market just said: government cutbacks are bad for business.  The government needs to spend more, not less.  Fortunately, there are viable ways to do this while still balancing the budget.

Originally from The Market Oracle

NEW YORK (TheStreet) -- Dallas Fed President Richard Fisher says that monetary policy has reached its limits and it is now necessary for economic growth to be unleashed.

Speaking at the Rotary Club of Dallas on Wednesday, Fisher said: "I firmly believe that the Federal Reserve has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with. But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $1.5 trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses."

Dalllas Fed President Richard Fisher ...

Originally from TheStreet

NEW YORK (TheStreet) -- Dallas Fed President Richard Fisher says that monetary policy has reached its limits and it is now necessary for economic growth to be unleashed.

Speaking at the Rotary Club of Dallas on Wednesday, Fisher said: "I firmly believe that the Federal Reserve has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with. But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $1.5 trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses."

Dalllas Fed President Richard Fisher ...

Originally from TheStreet

PGL, in the process of an optimistic piece, points us to Martin Feldstein ringing in 2011. Apparently, the reason is this:

The most substantial potential boost to spending comes from a temporary reduction of the payroll tax, lowering the rate paid by employees on income up to about $100,000 from 6.2 per cent to 4.2 per cent. But, while the decline in tax payments will be about 0.8 per cent of GDP, it is not clear how much of this will translate into additional consumer spending and how much into additional saving. Because this tax cut will take the form of lower withholding from weekly or monthly wages, it may seem more permanent than it really is, and therefore has a greater impact on spending than households’ very feeble response to the previous temporary tax changes.

Feldstein attempts a free-finesse with "it may seem more permanent than it really is." This is like playing the seven to the Queen when you're only other holding is 10-x and expecting it to work.

It's six months later. The crowd jewel of BarryO's deficit-saving agreement, per Feldstein, was a low-impact change that was mostly (if my paycheck is any indication) neutralized by other factors (such as increases in health insurance costs). So the payroll cut is going to UHC or Aetna, or BCBS, or some other place where the money multiplier will be significantly less than one.

Even more interesting is that, just three paragraphs before, Feldstein understood that workers are still engaged in balance-sheet repair, and the likely consequences of same:

Even for those taxpayers who had feared a tax increase in 2011 and 2012, it is not clear how much the lower tax payments will actually boost consumer spending. The previous temporary tax cuts in 2008 and 2009 appear to have gone largely into saving and debt reduction rather than increased spending.

It is surprising, therefore, that forecasters raised their GDP growth forecasts for 2011 significantly on the basis of the tax agreement.

But Feldstein did see some good in the greater tax deal—it would temper deficit fears:

Obama wanted to continue the 2010 tax rates permanently for all taxpayers except those with annual incomes over $250,000....By agreeing to limit the current tax rates for just two years, the tax package reduces the projected national debt at the end of the decade (relative to what it would have been with the Obama Budget) by some $2 trillion or nearly 10 per cent of GDP in 2020.

That reduction in potential deficits and debt can by itself give a boost to the economy in 2011 by calming fears that an exploding national debt would eventually force the Federal Reserve to raise interest rates — perhaps sharply if foreign buyers of US Treasuries suddenly became frightened by the deficit prospects.

There can be only one remaining question:

When will Martin Feldstein endorse Jon Hunstman for President?

Originally from Angry Bear

The QQQ (Etf for NASD 100) as been breaking down, and like every other major index it is at a critical juncture. What to do, but the dip? Just like all the previous dips since March 2009, maybe.

The markets are waiting for Athens and the Fed minutes. Price normally bounces of strong support once, and then if the down trend has legs breaks on the second test of said support. So that is what we will do wait for the second test. You can bet the perma bulls will do all they can to get a rally … [visit site to read more] or compare Best Credit Cards and Balance Transfer Credit Cards

Originally from DailyMarkets.com

The core Consumer Price Index (CPI), which excludes food and energy, increased 0.3% in May from the previous month and moved up 1.5% on a year-over-year basis and which leaves the Fed less comfortable than it has been in the past few months. 

Originally from The Market Oracle

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the claim by DNC Chair Debbie Wasserman Schultz that Obama has turned around the U.S. Economy, Michele Bachmann, and whether or not the Fed’s dual mandate should be reconsidered.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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00:31 – Debbie Wasserman Schultz and Obama’s Economy
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17:00 – The Federal Reserve

Originally from Big Government

Was Friday's job's report the final nail in the coffin for QE2?   It should be. After all, how is Fed chairman Ben Bernanke going to convince people that his bond purchasing program is working when payrolls rose by a measly 54,000 and the unemployment rate climbed back to 9.1 percent?  It'll take a lot more than fast-talk to sell that load of horse-manure. The truth is,  QE2 has been a total bust and the BLS's report is just the icing on the cake. Just look at the data; it's as grim as anything we've seen in the last two years.  Here's a clip from an article titled "Disastrous US jobs report points to deepening slump" that will give the reader some idea of how bad things really are:

Originally from The Market Oracle