Tag Archives: Ben Bernanke

Volcker Rule Ushers in Era of Increased Oversight of Trades

According to Bloomberg,

Wall Street faces more intensive government scrutiny of trading after U.S. regulators issued what they billed as a strict Volcker rule today, imposing new curbs designed to prevent financial blowups while leaving many details to be worked out later.

The Federal Reserve, Federal Deposit Insurance Corp. and three other agencies formally adopted the proprietary trading ban. The rule has been contested by JPMorgan Chase & Co., Goldman Sachs Group Inc. and their industry allies for more than three years.

Wall Street’s lobbying efforts paid off in easing some provisions of the rule. Regulators granted a broader exemption for banks’ market-making desks, on the condition that traders aren’t paid in a way that rewards proprietary trading. The regulation also exempts some securities tied to foreign sovereign debt.

At the same time, regulators said the final version imposed stricter restrictions on hedging, providing banks less leeway for classifying bets as broad hedges for other risks. To pursue a hedge, banks would need to provide detailed and updated information for review by on-site bank supervisors.

Limiting Risks

 

“This provision of the Dodd-Frank Act has the important objective of limiting excessive risk-taking by depository institutions and their affiliates,” Fed Chairman Ben S. Bernanke said in a statement. “The ultimate effectiveness of the rule will depend importantly on supervisors, who will need to find the appropriate balance while providing feedback to the board on how the rule works in practice.”

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U.S. Stocks Fall as Best Buy Drops Before Bernanke Speech

According to Bloomberg,

U.S. stocks fell after disappointing forecasts from Best Buy (BBY) Co. and Campbell Soup Co. while investors awaited a speech from Federal Reserve Chairman Ben S. Bernanke to gauge the prospect of continued stimulus.

Best Buy slid 11 percent, the most in almost a year, after saying it will work to keep pace with competitors’ discounts in the holiday season, hurting fourth-quarter profitability. Campbell Soup fell 6.2 percent after cutting its profit forecast. Home Depot Inc. (HD) gained 0.9 percent after boosting its earnings forecast as rising home prices spurred homeowners to splurge on renovations. Tyson Foods Inc. climbed 4.6 percent for a sixth day of gains as sales beat analysts’ expectations.

The Standard & Poor’s 500 Index fell 0.2 percent to 1,787.87 at 4 p.m. in New York. Yesterday, the gauge briefly surpassed 1,800 (SPX) for the first time. The Dow Jones Industrial Average lost 8.99 points, or less than 0.1 percent, to 15,967.03. About 5.8 billion shares changed hands on U.S. exchanges, about 3 percent below the three-month average.

“The economy is not doing badly, and the Fed is remaining very aggressive and very friendly toward the market,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida. His firm oversees $100 billion. “We’ve had a big run. My suspicion is that the market might go sideways now for a little while before we encounter a year-end rally in December.”

The S&P 500 is up 25 percent this year, putting it on track for the biggest annual gain since 2003, as the Fed kept its monetary stimulus to spur economic growth and corporate earnings topped analysts’ estimates.

‘More Hopeful’

BlackRock's Fink on Equities, Regulatory Oversight

BlackRock’s Fink on Equities, Regulatory Oversight

Bernanke is scheduled to speak in Washington today after Fed Bank of New York President William Dudley said yesterday that while he’s “more hopeful” the U.S. economy is strengthening, it’s not enough to warrant stimulus cuts yet.

Chicago Fed President Charles Evans, among the most vocal advocates for additional easing from the Fed, said today that while the central bank is going to deliver highly accommodative policy until it can get the economy where it wants, the biggest challenge is credibility.

The Organization for Economic Cooperation and Development cut global growth forecasts for this year and next as emerging-market economies including India and Brazil cool. The world economy may expand 2.7 percent this year and 3.6 percent next year, instead of the 3.1 percent and 4 percent predicted in May, the Paris-based OECD said in a report today. Growth in the U.S. will be 1.7 percent and 2.9 percent this year and next, broadly similar to the outlook in May.

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Bernanke Sees Low Interest Rates Long After Bond Buying Ends

According to Bloomberg,

Fed Chairman Ben S. Bernanke

Fed Chairman Ben S. Bernanke

Federal Reserve Chairman Ben S. Bernanke said the labor market has shown “meaningful improvement” since the start of the central bank’s bond-buying program and that the benchmark interest rate will probably stay low long after the purchases end.

“The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after” the jobless rate falls below the Fed’s 6.5 percent threshold, Bernanke said today in a speech to economists in Washington. He said a “preponderance of data” would be needed to begin removing accommodation.

Fed officials will weigh both the “cumulative progress” since they began the third round of bond buying in September 2012 as well as “the prospect for continued gains” as they evaluate the outlook for the labor market, Bernanke said. While recent job reports have been “somewhat disappointing,” the unemployment rate has fallen 0.8 percentage point during the program and about 2.6 million payroll jobs have been added, he said.

Policy makers are debating how to slow the pace of asset purchases without causing a surge in interest rates that could jeopardize the more than four-year economic expansion. Central bankers have sought to convince investors that tapering the $85 billion monthly pace of bond purchases wouldn’t signal that an increase in the benchmark interest rate is any closer.

‘Progressed Sufficiently’

When the Fed does slow asset purchases, “it will likely be because the economy has progressed sufficiently” for central bankers to rely more on guidance about the outlook for the main interest rate, Bernanke said.

“He’s saying that they achieved improvement in labor market conditions, but they’re still uncertain whether that progress will be sustained without all their support,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the Federal Reserve Bank of New York.

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Fed Largess Aids U.S. Financial Strength BofA Deems Unrivaled

According to Bloomberg,

Five years after Federal Reserve Chairman Ben S. Bernanke dropped U.S. interest rates toward zero to end the worst economic crisis since the Great Depression, America’s financial markets have become the envy of the world.

BofA (Bloomberg)

BofA (Bloomberg)

 

 

 

 

 

 

 

From money-market rates to yields on government and company bonds to equity prices, financial conditions in the U.S. are healthier than before Lehman Brothers Holdings Inc. collapsed in 2008, even as growth falters in Asia and Europe. The U.S. now has the strongest economy among industrialized nations, which would be its highest rank since 2000, according to David Woo, the New York-based global head of interest rate and currency strategy at Bank of America Corp.

“Resilient is the word that comes to mind in regards to the U.S.,” Paul Montaquila, the fixed-income investment officer at BNP Paribas SA’s Bank of the West, which oversees $62 billion in assets, said in a telephone interview from San Ramon, California. The strength of the financial markets demonstrates “the U.S. is still the preferred market of choice for global investors and the most-important engine of growth.”

While the Fed’s decision to push borrowing costs to historical lows in December 2008 helped developing economies recover more quickly as the U.S. housing bust crippled Americans’ ability to spend, investors are now showing greater conviction that the nation will underpin growth globally.

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Yellen: Economy Performing ‘Far Short’ of Potential

According to Bloomberg,

Fed Vice Chairman Janet Yellen (Bloomberg)

Fed Vice Chairman Janet Yellen (Bloomberg)

Janet Yellen, nominated to be the next chairman of the Federal Reserve, signaled she will carry on the central bank’s unprecedented stimulus until she sees improvement in an economy that’s operating well below potential.

“A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” Yellen said in testimony for her nomination hearing before the Senate Banking Committee today in Washington. “Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”

Yellen, the Fed’s vice chairman, voiced her commitment to using bond purchases known as quantitative easing to boost growth and lower unemployment that remains above 7 percent more than four years after the economy began to recover from the deepest recession since the Great Depression.

“Her approach is, ‘Let’s do more QE now to get the job done faster,’ ” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former researcher at the New York Fed. “Yellen is repeating her commitment to getting the job done.”

In three pages of prepared remarks for the 10 a.m. hearing, released yesterday, Yellen, 67, said unemployment is “still too high, reflecting a labor market and economy performing far short of their potential,” and that inflation is expected to remain below the Fed’s 2 percent goal. She also highlighted areas where the economy has improved, saying housing “seems to have turned a corner” and the auto industry has made an “impressive comeback.”

‘Inflation Hawk’

Treasury 10-year yields rose one basis point, or 0.01 percentage point, to 2.73 percent as of 10:11 a.m. in New York. The benchmark yield slid seven basis points yesterday, the biggest one-day drop since Oct. 22.

Because inflation is low today, a policy maker “can be an inflation hawk and be in favor of policy accommodation at the same time,” said Lou Crandall, chief economist at Wrightson ICAP LLC, a research firm in Jersey City, New Jersey.

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As Wal-Mart, Cisco Slump, U.S. Stocks Are Little Changed

According to Bloomberg,

U.S. stocks were little changed, after benchmark indexes rose to records yesterday, as Cisco Systems Inc. and Wal-Mart Stores Inc. slumped before testimony from the Federal Reserve’s Janet Yellen.

Cisco tumbled 13 percent after its profit forecast missed projections. Wal-Mart and Kohl’s Corp dropped after the retailers cut their forecasts.

The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,782.61 at 9:32 a.m. in New York. The S&P 500 and the Dow Jones Industrial Average climbed to a records yesterday as Macy’s Inc. led a rally among retailers.

“We saw Macy’s earnings support the market yesterday, and I think Wal-Mart’s are going to weigh on the market today,” Chris Gaffney, St. Louis-based senior market strategist at EverBank Wealth Management, said in a phone interview. “The fourth quarter is what everyone has got to count on. There’s a lot of worry in the markets right now about just how much spending consumers will be doing.”

After the close of U.S. exchanges yesterday, Yellen said the economy and labor market are performing short of their potential and must improve before the central bank can begin to reduce monetary stimulus.

‘More Normal’

“Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” Yellen said in prepared remarks for her nomination hearing before the Senate Banking Committee today to succeed Ben S. Bernanke as chairman. The hearing is scheduled from 10 a.m. in Washington.

Fed policy makers will probably pare the monthly pace of bond buying to $70 billion at their March 18-19 meeting, according to the median of 32 estimates in a Bloomberg survey of economists on Nov. 8. The group next meets Dec. 17-18.

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Bernanke: Failing Bank Process Needed to Reduce Crises

Fed Chairman Ben S. Bernanke (Bloomberg)

Fed Chairman Ben S. Bernanke (Bloomberg)

According to Bloomberg,

Federal Reserve Chairman Ben S. Bernanke said a process under development that would allow regulators to take down a failing bank will help ensure investors discipline weak firms and prevent them from taking risks without consequence.

“As we try to make the financial system safer, we must inevitably confront the problem of moral hazard,” Bernanke said today in remarks at an International Monetary Fund conference in Washington. “Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs.”

He addressed the economy only briefly during the panel discussion, saying that there was still “an awful lot of slack in the labor market” and said that was justification for the Fed taking “strong actions to try to support job creation.”

In response to audience questions, Bernanke said that the high level of student debt is “another drag on the recovery” although it is not likely to cause a financial crisis because most such loans are owned by the government, not financial institutions.

Financial Crises

Bernanke spoke as part of a panel discussion that included Harvard University’s Kenneth Rogoff, the co-author of the history of financial crises titled “This Time Is Different: Eight Centuries of Financial Folly”; former Bank of Israel governor Stanley Fischer; and former U.S. Treasury Secretary Larry Summers.

 

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