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Interest Rates

Can Bernanke Tune Out Political Pressure as the FOMC Again Ponders Policy Changes?

When U.S. Federal Reserve Chairman Ben S. Bernanke emerges from the central bank's monthly policymaking meeting at around 2:15 p.m. today (Wednesday), it's a near certainty that he'll reaffirm his pledge to keep interest rates "exceptionally low" for an "extended period" of time.

Bernanke has kept the benchmark Federal Funds rate at a record low range of 0.00%-0.25% since December 2008, and that's not likely to change as a result of today's meeting of the central bank's Federal Open Market Committee (FOMC).

At some point, however, Bernanke will have to tighten credit and raise interest rates in order to soak up all the excess liquidity and curb inflation in the U.S. economy. But the question remains: When that time comes, will Bernanke have the fortitude to do so?

There's no simple answer. And for good reason: With the country mired in its worst financial crisis in most Americans' lifetimes, the central bank's decisions now are as political in focus as they are economic.

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China is Doing Exactly What the United States Should be Doing – Looking Ahead

After boosting its economy with an $885 billion (2 trillion yuan) stimulus package, China is doing exactly what the United States should be doing - turning its attention toward inflation and excess lending.

The People's Bank of China (BOC) yesterday (Thursday) raised the interest rate on its three-month bills for the first time since Aug. 13. The central bank sold $8.8 billion (60 billion yuan) of three-month bills at a yield of 1.3684%. That's up from 1.3280% last week.

Also, the BOC this week drained a net $20.1 billion (137 billion yuan) from the money market through its open-market operations - its largest weekly fund withdrawal in nearly three months.

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A Note to Bernanke: Sorry Ben, More Bureaucracy Isn't the Answer

U.S. Federal Reserve Chairman Ben Bernanke's latest thesis is that the home mortgage bubble had little to do with record low interest rates, and was actually much more a problem of regulation.

It sounds plausible - until you give it some real thought. After all, I believe that humanity has already tried a system with tight, vigorously enforced regulations, and no price mechanism.

It was called the Soviet Union.

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Markman on the Markets: Historic Bull Run in Bonds Points to Higher Prices for U.S. Stocks

A sluggish month in the stock market has equity investors worrying about what's next.

But those equity investors would feel so much better if they'd just spend a little time studying the credit markets. And with good reason: The bull market in credit that continues to rage in the face of this stock-market lethargy leads us to one simple conclusion.

Stock prices have to head higher.

Indeed, independent analyst Brian Reynolds tells us that if stocks were trading at the same level as credit, the Standard & Poor's 500 Index would already be at 1,350 - 22% above where it closed on Friday.

For those who argue that the market has already rallied a great deal, or too much, let me just note that the S&P 500 would have to rise by another 41% just to get back to the level of three years ago. The key thing that bulls have in their back pocket is that investors are still trying to get used to the idea that the sky hasn't fallen - and have not yet priced in the prospects for a 25% increase in S&P 500 profits that we are likely to see in 2010.

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Fed Preparing Unorthodox Exit Strategy

The U.S. Federal Reserve may take an unorthodox approach to raising interest rates by paying interest on bank reserves rather than relying on traditional open market remedies, as it exits from its long-term fiscal stimulus programs, Reuters reported today (Tuesday).

Paying interest on reserves is mostly untested and would represent an unexpected twist in the Fed's response to the financial meltdown.

"In the old days ... the Fed controlled the federal funds rate with open market operations," Antulio Bomfim, a former Fed economist now with Macroeconomic Advisors LLC in Washington told Reuters. "Now, at least in this period when reserves are over-abundant, the way the Fed hopes to raise the federal funds rate will be primarily by raising the interest rate it pays on reserves."

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What Investors Should Look for in Today's Fed Statement

In its continuing efforts to nurture the fragile economic recovery, the U.S. Federal Reserve is widely expected to leave interest rates at record lows when it concludes its meeting today (Wednesday).

However, observers will be closely examining the details of the language in the statement of the Federal Open Market Committee (FOMC) meeting for hints as to when it plans to change monetary policy.

The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero until the second half of next year. But that assumes the economic growth will stay in line with the Fed's current forecast - a weak recovery with subdued inflation and slow growth.

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The Only Way to Profit From a Stock Market Bubble

Former U.S. Federal Reserve Chairman Alan Greenspan said it was impossible to tell a bubble while you were in it. Well Alan, I’ve got news for you: We’re in one now. The Standard & Poor’s 500 Index is up 58% from its March lows, gold has finally broken through the $1,000-an-ounce level – and may […]

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U.S. Stocks: Winning Streak is Over, But Bull Market Continues

The winning streak is over. But the outlook for stocks remains upbeat. U.S. stocks on Friday suffered their first setback after six straight days of gains, but the damage wasn't severe. No news appeared to precipitate the decline, so chalk it up to light profit-taking. In the Friday session, the Dow Jones Industrial Average lost […]

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Short-Term Rates Rise Despite Central Bank Efforts

By Jennifer YousfiManaging Editor Interest rates for short-term loans with a maturity of three months or less continue to inch up, despite moves by global central banks to restore liquidity in the markets. "There's really only a handful of banks that are offering cash," Ronald Tharun, a money-market trader at a unit of Landesbank Baden-Wuerttemberg, […]

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Payrolls Plummet, Odds of a Rate Cut Improve

By Jason Simpkins Associate Editor Payrolls fell for a second straight month, suggesting that a recession has taken root in the beleaguered U.S. economy and the Federal Reserve will have to take greater steps to increase liquidity and preserve growth despite rising inflationary pressures. U.S. payrolls suffered their biggest monthly decline in five years in […]

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The Five Ways to Profit From the Pending Gold Bubble

By Martin Hutchinson Director of Global Investing Research (The First of Two Parts) The Fed has kept interest rates too low for the last decade, causing bubbles in tech stocks and housing, and has now begun to lower rates anew. Other central banks have done the same, notably in China, where the economy and the […]

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Fed Official Offers Assurance

From Staff Reports U.S. Federal Reserve Governor Randall Kroszner yesterday (Monday) assured investors that the central bank would take the necessary steps to protect the economy and to foster growth. "The Federal Reserve will continue to monitor developments in financial markets and act as needed to support the effective functioning of these markets and to […]

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Eleven Ways to Profit From the Falling U.S. Dollar

By Keith Fitz-Gerald Contributing Editor Every year I talk with thousands of investors around the world and invariably the Number One question I'm getting lately is: "What's up with the dollar?" That's completely understandable. But it's actually what's "down" with the dollar that matters when it comes to setting the stage for your own global […]

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Beware of This Fed-Led Stock Market Rally

By Keith Fitz-Gerald Contributing Editor Money Morning/The Money Map Report As a professional trader, I’m never far from my trading screens. But I find that I’ve been watching them even more intently than usual over the past few days. When I take a step back and attempt to assess just why I seem to be […]

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Fed’s Minutes Reveal a Unanimous Decision to Slash Rates

By Jason Simpkins Staff Writer Fed policymakers – concerned the credit crunch and housing slump could take a heavy toll on economic growth – voted unanimously to cut interest rates by half a percentage point at their Sept. 18 meeting. Fed policymakers unanimously agreed to slash interest rates by one-half percentage point to 4.75 percent, […]

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