The coordinated actions by the Federal Reserve and other central banks is aimed at the funding strains faced by European banks in what was becoming a modern day run on the banks.
Geithner's performance arguably far and away was his best in quite some time, with him sounding more substantive than political and because he spoke as if he was intent on inspiring confidence in the financial markets, something the markets need in a Treasury Secretary.
In a June 22 press conference, Bernanke indicated implicitly that the Fed could increase the average maturity of its holdings. One of the more important passages in today’s testimony is not just the reference to the Fed possibly increasing the average maturity of SOMA, but the implicit yet clear reference to and acknowledgment of the lagged effects of monetary policy, says bond expert Tony Crescenzi.
Keep in mind these three top objectives of post-FOMC press conferences: Control inflation expectations amid today’s extraordinary degree of monetary accommodation, (Eventually) Limit damage control from a future reversal of policy and Guide market expectations about current and future unconventional policy actions.
I give Bernanke a B+ because for one he was too rehearsed at times, obviously reaching for and seeking to insert soundbites throughout the press conference and in his very lengthy opening monologue, which took up about 20% of the planned 45 minutes for the press conference.
The money market has become an ever-worsening house of pain, owing to the Federal Reserve’s merciless effort to create an investment climate so punishing that it drives investors to seek refuge in other assets.
In the aftermath of the financial crisis, central bankers throughout the world have not had much of an inflation battle to fight; in fact, the risk of deflation has been seen as the bigger foe, prompting central bankers to focus far more on promoting economic growth. In essence, central bankers have sought to reduce unemployment, believing its other adversary—inflation, was not even on the battlefield.
Money market rates continued to decline to punishingly low levels in the latest week, pressured downward by a further increase in the monetary base, which is resulting from the Federal Reserve’s asset-purchase program.
It is important to recognize the idea that the U.S. bond market is in the latter stages of a 30-year journey during which a “duration tailwind” pushed down market interest rates and boosted returns.
It is what will lead the U.S. economy to a self-reinforcing virtuous cycle of increases in production, income, and spending, and it is what will enable risk assets to continue to outperform less risky assets. This condition will prevail for a while. The path to successful investing is to ride these trends and get off before they are discredited, says bond expert Tony Crescenzi.
As Fed Chairman Ben Bernanke indicated recently on 60 Minutes, today's FOMC statement indicates that the Federal Reserve feels that the U.S. economy has only tentatively achieved escape velocity, such that the Fed must continue to provide fuel to push the rocket ship further into orbit.
Nations are left with old playbooks and fewer choices by which to resolve their respective problems. This means that time, devaluations, and debt restructurings might be the only way out for many nations. It also means the citizenry will require politicians that can think outside of the box and act with greater unity and resolve than perhaps they are used to.
The rebound in the U.S. economy until the third quarter was concentrated in the goods-producing sector of the economy, something quite evident in data on personal spending on durable goods, particularly compared to data for spending on services. Given the fact that the U.S. economy is a service-oriented economy, the composition of consumer spending had therefore been skewed unfavorably in terms of what is best for job growth.
In today’s report, the service sector was shown to have added 154k private-sector service-producing jobs. The gain fits with recent data suggesting the composition of U.S. growth has shifted favorably, with spending moving toward services rather than manufactured products. This is of course good for the U.S. job market, because the service sector is where the vast majority of jobs exist.
The notion of a reverse Ricardian-equivalence is in play again today following news that U.K.’s economy grew at a 0.8 percent pace in the third quarter, double the consensus forecast, says bond expert Tony Crescenzi.
The vast amount of excess reserves in the U.S. banking system is of course fuel for money supply growth, but the match has been miles away.
Today, the Institute for Supply Management reported that its non-manufacturing index, an index designed to gauge conditions in the service sector, increased to 53.2 in September from 51.5 in August, exceeding forecasts for a reading of 52.0. This strength must continue if the U.S. job situation is to improve.
In the weeks ahead, high-frequency data such as chain store sales will provide clues as to whether or not the equity market’s rally is positively influencing consumer behavior.
For Tuesday’s FOMC meeting, market participants are likely to focus on three issues in particular: Whether the Federal Reserve has reduced its 2011 economic forecast, the trigger that would spur additional monetary easing by the Fed and the specific actions the Fed might take.
An article published in the Financial Times Wednesday discusses a forecast by GFMS, a consultancy, which believes that the world’s central banks will purchase 15 tonnes of gold on a net basis this year, the first net purchase since 1988, according to GFMS. Central banks for a number of years have been liquidating their gold stockpiles in favor of holding paper currencies such as the U.S. dollar.