Archive for the ‘Federal Reserve’ Category

Omama May Retain Three Top Bush Appointees

November 10, 2008

As President-elect Barack Obama prepares to fill top positions for his incoming government, he faces a stubborn reality: Some of the key individuals he will rely upon to tackle the country’s most serious challenges are holdovers from the current administration — a trio of Bush appointees who will likely stay in place for at least the first year or two of Obama‘s presidency.

In confronting the financial crisis and weakening economy, Obama must turn to Ben S. Bernanke, a Republican and former chairman of President Bush’s Council of Economic Advisers, who will lead the Federal Reserve for at least the first year of the new administration.

US Federal Reserve Chairman Ben Bernanke is seen during the ... 
US Federal Reserve Chairman Ben Bernanke is seen during the opening of the G-20 Finance Ministers and Central Bank Governors meeting in Sao Paulo, Saturday, Nov. 8, 2008. Brazil’s President Luiz Inacio Lula da Silva said during his speech the world’s big emerging nations must have a big role in upcoming negotiations to fix the planet’s financial system and prevent another global economic meltdown.(AP Photo/Andre Penner)

In assuming control of the wars in Iraq and Afghanistan, Obama must work with Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, who was appointed by Defense Secretary Robert M. Gates for a two-year term that will end in late 2009 and, by tradition, can expect to be appointed for a second term as the president’s top military adviser. Mullen shares Obama’s belief in focusing more on Afghanistan but is wary of a timeline for withdrawing troops from Iraq.

US Chairman of the Joint Chiefs of Staff Admiral Michael Mullen ... 
Admiral Mullen .(AFP/File/Nicholas Kamm)

And in guarding against terrorist attacks — while correcting what he considers the Bush administration’s excesses — Obama will rely upon FBI Director Robert S. Mueller III, whose term expires in 2011. 

By Alec MacGillis and Ann Scott Tyson
Washington Post Staff Writers
Monday, November 10, 2008; Page A01

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Consumer Confidence at All Time Low

October 28, 2008

Layoffs, plunging home prices and tumbling investments have pushed consumer pessimism to record levels in October, a private research group said Tuesday. Wall Street shook it off, though, focusing instead on higher global markets amid optimism the Federal Reserve will ease interest rates further.

By CHRISTOPHER S. RUGABER, AP Economics Writer

The Conference Board said the consumer confidence index fell to 38, down from a revised 61.4 in September and significantly below analysts’ expectations of 52.

An employee working as a money changer prepares U.S. dollar ...

That’s the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967, and the third-steepest drop. A year ago, the index stood at 95.2.

Wall Street, which has come to expect bad news on the economy, took the report in stride. The Dow gave up some of its early gains but was still up about 2 percent in midday trading, while the broader S&P 500 index rose 1.7 percent.

Investors are expecting the Federal Reserve to cut its target interest rate Wednesday by up to one-half a percentage point to 1 percent after its two-day meeting that began Tuesday.

In addition, European and Asian financial markets were up significantly Tuesday on expectations of the cut.

The news was not good for Main Street, though.

“Consumers are extremely pessimistic,” said Lynn Franco, director of the Conference Board’s Consumer Research Center. “This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”

Separately, a closely watched index of home prices fell by its steepest ever annual rate in August.

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Fed: Economy Sinks Deeper Into Rut

October 15, 2008

By JEANNINE AVERSA, AP Economics Writer

WASHINGTON – The country has sunk deeper into an economic rut, the Federal Reserve reported Wednesday.

Federal Reserve Chairman Ben Bernanke speaks at the Economic ... 
Federal Reserve Chairman Ben Bernanke speaks at the Economic Club of New York. Bernanke said Wednesday that a recovery from the financial crisis “will not happen right away” but that the US economy will eventually emerge “with renewed vigor.“(AFP/Getty Images/Chris Hondros)

The Fed’s new snapshot of business conditions around the nation showed the economy continued to lose traction in the early fall, reflecting mounting damage as financial and credit problems worsened.

Economic activity weakened across all of the Fed’s 12 regional districts, according to the report. Consumer spending — the lifeblood of the economy — slumped in most Fed regions. Manufacturing also slowed in most areas.

Some businesses had become more pessimistic about the economic outlook, the Fed said.

The survey was released shortly after Fed Chairman Ben Bernanke, in a speech in New York, warned that it would take time for the country’s economic health to mend even if badly needed confidence in the U.S. financial system returns and roiled markets stabilize.

THIS IS A BREAKING NEWS UPDATE
The US Federal Reserve in Washington, DC. The United States ... 
The US Federal Reserve in Washington, DC. The United States has slipped into recession, the head of the San Francisco branch of the central bank has said.(AFP/File/Karen Bleier)

Former Fed Chief Says U.S. Now in Recession; Addresses Inflation Fears

October 14, 2008

SINGAPORE (Reuters) – Former Federal Reserve Chairman Paul Volcker said on Tuesday the U.S. housing sector faced more losses and the economy was in recession even as authorities moved to stabilize the financial system.

Former Federal Reserve Chairman Paul Volcker addresses business ... 
Former Federal Reserve Chairman Paul Volcker addresses business leaders at the Spruce Meadows round table on Global Banking in Calgary, September 5, 2008.(Todd Korol/Reuters)

Volcker said the priority for U.S. authorities in the credit crisis was to stabilize the financial system even though that meant heavy government intrusion.

“The first priority is to stabilize the financial system. It is necessary even though the cost involved is heavy government intrusion in markets that should be private,” he said in a speech at a seminar in Singapore.

“House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession.”

Volcker is chairman of the board of trustees of the Group of 30, an international body composed of central bank governors, leading economists and private financial sector experts.

He is credited for battling double-digit inflation that flared in the 1970s.

He was chairman of the U.S. central bank between 1979 and 1987, before handing the reins over to Alan Greenspan, and oversaw a sharp increase in interest rates to quell the price pressures.

Volcker was asked by a member of the audience if the massive infusion of liquidity by the Federal Reserve could lead to inflation or stagflation.

“It’s not going to be a problem in the short run. Inflation doesn’t flourish in the face of recession,” he said.

“It’s something we have to worry about when we get out of this recession.”

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Related:
https://johnibii.wordpress.com/2008/03/08/my-
personal-view-is-america-is-in-recession-admit-it/

U.S. Is Investing $250 Billion in Banks: Bush Addresses Financial Crisis

October 14, 2008
WASHINGTON — President Bush, speaking from the Rose Garden Tuesday before the markets opened in New York, called the government plan to invest up to $250 billion in banks essential to help assure stability in the nation’s financial system.

Under the proposal that is similar to those initiated by European governments on Monday, President Bush said the Treasury Department would invest up to $250 billion in banks, receiving an equity stake in return.

“This is an essential short-term measure to ensure the viability of the American banking system,” Mr. Bush said.

The United States would also guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers, officials said.

The Federal Deposit Insurance Corporation would also offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees.

In addition, Mr. Bush said the Federal Reserve would start a program to become the buyer of last resort for commercial paper, a move intended to help businesses get the money they need for day-to-day operations.

Mr. Bush’s comments were the latest in series by administration officials and government leaders around the world to try to calm the financial turmoil and help stave off a deep recession. And markets around the world have rebounded on news of the coordinated efforts by various governments. The Dow Jones industrial average gained 936 points, or 11 percent, the largest single-day gain in the American stock market since the 1930s and future indexes were substantially higher. European markets were up at least 5 percent on Tuesday after rising nearing 10 percent Monday.

The president described the four measures as “unprecedented and aggressive.” Each of the new programs protects taxpayers and is “limited and temporary,” Mr. Bush said.

“These measures are not intended to take over the free market,” he said, but to safeguard it.

It will take time for our efforts to have their full impact,” Mr. Bush said, “but the American people can have confidence about our long-term economic future.

As the White House has done since the House rejected the initial bailout legislation, Mr. Bush sought to assure Americans that the efforts were necessary to protect their savings and retirement.

“I recognize that the action leaders are taking here in Washington and in European capitals can seem distant from those concerns,” he said. “But these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover.”

Treasury Secretary Henry M. Paulson Jr. outlined the plan to nine of the nation’s leading bankers at a meeting Monday afternoon d. He essentially told the participants that they would have to accept government investment for the good of the American financial system, according to officials.

Of the $250 billion, which will come from the $700 billion bailout approved by Congress, half is to be injected into nine big banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JPMorgan Chase, officials said. The other half is to go to smaller banks and thrifts. The investments will be structured so that the government can benefit from a rebound in the banks’ fortunes.

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Perils in The Price Of Each Grain of Rice

April 3, 2008

By David Ignatius
The Washington Post
Thursday, April 3, 2008; Page A17

You may have missed the front-page article in the New York Times last Saturday, with the one-column headline written in clipped newspaperese: “High Rice Cost Creating Fears of Asia Unrest.” But this little story could be an early warning of another big economic problem that’s sneaking up on us.

The new danger is global inflation — most worryingly in food prices, but also in prices for commodities, raw materials and products that require petroleum energy, which includes almost everything. Prices for these goods have been skyrocketing in international markets — at the same time the Federal Reserve and other central banks have been hosing the world with new money in their efforts to avoid a financial crisis.

That’s an explosive mixture. It risks a kind of inflation that would trigger panic buying, hoarding and fears of mass political protest. Actually, this is already happening in Asia, according to the Times.

The price of rice in global markets has nearly doubled in the last three months, reports the Times’s Keith Bradsher.
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Fearing shortages, some major rice producers — including Vietnam, India, Egypt and Cambodia — have sharply limited their rice exports so they can be sure they can feed their own people.

Bradsher summarizes the evidence that food shortages and inflation are fueling political unrest: “Since January, thousands of troops have been deployed in Pakistan to guard trucks carrying wheat and flour. Protests have erupted in Indonesia over soybean shortage, and China has put price controls on cooking oil, grain, meat, milk and eggs. Food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen.”

World Bank President Robert Zoellick rang the alarm bell in a speech yesterday. He noted that since 2005, the prices of staples have risen 80 percent. The real price of rice rose to a 19-year high last month, he said, while the real price of wheat hit a 28-year high.

Zoellick warned that this inflation is having political repercussions: “The World Bank Group estimates that 33 countries around the world face potential political and social unrest because of the acute hike in food and energy prices.” To cope with the topsy-turvy economy, Zoellick made an innovative proposal that countries running a surplus, such as Saudi Arabia and China, devote 1 percent of their “sovereign wealth” funds to investment in Africa‘s poor countries. That could yield up to $30 billion in development spending.

Now, cut to the Federal Reserve. At a time when global inflation is raging, you might expect that the central bank’s first priority would be to dampen inflationary expectations in the United States. But because of its worries about a financial meltdown, the Fed has been doing the opposite — drastically cutting interest rates in an effort to unclog the financial markets. The cheap money didn’t stop the Wall Street bank run — it was the Fed’s bold plan to absorb subprime debt that did that — but it may well add fuel to the inflation fire.

Related:
Lowly Rice Grain Impacts Global Economy

Vietnam and India move to limit rice exports

Inflation and Food Shortages?

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Bernanke warns of possible recession

April 2, 2008
By JEANNINE AVERSA, AP Economics Writer 

WASHINGTON – Federal Reserve Chairman Ben Bernanke warned Wednesday the economy may shrink over the first half of this year and that “a recession is possible.” Yet, he didn’t offer any assurances of further interest rate cuts.

US Federal Reserve Bank Board Chairman Ben Bernanke responds ...
US Federal Reserve Bank Board Chairman Ben Bernanke responds to questions during a joint congressional hearing on the country’s economic outlook on Capitol Hill in Washington, April 2, 2008.REUTERS/Jonathan Ernst (UNITED STATES)

Bernanke’s testimony to the Joint Economic Committee was a much more pessimistic assessment of the economy’s immediate prospects amid a trio of crises — housing, credit and financial.

“It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States’ economic health. Under one rule, six straight months of declining GDP, would constitute a recession.

Still, Bernanke said that he expects more economic growth in the second half of this year and into 2009, helped by the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed’s aggressive reductions to a key interest rate. Nevertheless, the chairman acknowledged uncertainty about the Fed’s next steps, notwithstanding the mounting economic woes.

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Bush administration proposes sweeping overhaul of financial industry

March 29, 2008

WASHINGTON (AP) – The Bush administration is proposing a sweeping overhaul of the way the nation’s financial industry is regulated.
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In an effort to deal with the problems highlighted by the current severe credit crisis, the new plan would give major new powers to the Federal Reserve, according to a 22-page executive summary obtained last night by The Associated Press.
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The proposal would designate the Fed as the primary regulator of market stability, greatly expanding the central bank’s ability to examine not just commercial banks but all segments of the financial services industry.
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The administration proposal, which is to be formally unveiled in a speech Monday by Treasury Secretary Henry Paulson, also proposes consolidating the current scheme of bank regulation.

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Stocks soar, Dow rises 420 points

March 18, 2008
By MADLEN READ, AP Business Writer 

NEW YORK – Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve‘s decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Trader Vincent Quinones, foreground right, gathers with other ...
Trader Vincent Quinones, foreground right, gathers with other traders on the floor of the New York Stock Exchange, Tuesday March 18, 2008. Wall Street gave up some of its steep gains Tuesday while investors digested the Federal Reserve’s decision to cut interest rates by three-quarters of a percentage point. Many investors had expected a cut of a full percentage point.(AP Photo/Richard Drew)

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank’s benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.

In its statement accompanying the rate decision, the Fed said “recent information indicates that the outlook for economic activity has weakened further,” but also that “uncertainty about the inflation outlook has increased.”

“The Fed once again in the statement showed that it is ready for further action if this were needed,” said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. “It also showed the fact that it’s still paying attention to inflation … but that it is far from being the primary concern right now. And the market knows that, and it is happy.”

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Fire Sale of Bear Stearns Bear Sparks Rout, Bush Tries to Calm

March 17, 2008
By Jack Reerink 

NEW YORK (Reuters) – A fire sale of Bear Stearns Cos Inc (BSC.N) stunned Wall Street and pummeled global financial stocks on Monday on fears that few banks are safe from deepening market turmoil.

A U.S. two dollar bill is taped to the revolving door leading ...
A U.S. two dollar bill is taped to the revolving door leading to the Bear Stearns global headquarters in New York March 17, 2008.(Kristina Cooke/Reuters)

Trying to assuage worries that the credit crisis is spinning out of control, President George W. Bush said the United States was “on top of the situation,” but the sell-off intensified in the early afternoon.

The U.S. Federal Reserve geared up for a deep cut in interest rates on Tuesday to blow money into the fragile financial system — the latest in a series of rate cuts that has brought down borrowing costs by 2-1/4 percentage points and hammered the U.S. dollar to record lows.

Staff at Bear Stearns‘ Manhattan headquarters were welcomed to work on Monday by a two-dollar bill stuck to the revolving doors — a spoof on the bargain-basement price of $2 per share that JPMorgan Chase (JPM.N) is paying for the firm. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.

The combination of Bear Stearns’ bailout and the Fed’s offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.

And it scared market players worldwide….

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