Monetary Policy

Article Index

The Stronger U.S. Dollar Is Actually Destroying the Markets

By , Global Credit Strategist, Money Morning • @MichaelELewitt -

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The U.S. dollar remains the most important financial instrument in the world. The dollar rally has been the single most decisive factor in determining economic growth (or weakness) and market direction since early 2014.

Right now, that’s not a good thing. A stronger dollar has a far-reaching, negative domino effect that pressures global markets in all directions.

And that pressure is nearing the breaking point…

Federal Reserve's Plan "Won't End Well" for the Markets

By , Associate Editor, Money Morning -

Federal Reserve

At a meeting with Congress on Wednesday, U.S. Federal Reserve Chairwoman Janet Yellen reiterated the Fed's plan to raise interest rates in the months ahead.

But her words also showed a hint of doubt.

Yellen discussed several concerns about the economy that could make the Federal Reserve hesitate on the timing of rate hikes. She also reemphasized the Fed's willingness to experiment with controversial monetary policy tools, including negative interest rates.

Our Chief Investment Strategist Keith Fitz-Gerald made his usual appearance on CNBC to talk about why the Fed's experiments "won't end well" for the markets...

The Stock Market Today's Top Stories, Including DIS, FOX, GE, AAL and More

By , Executive Producer, Money Morning -

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Stock market today, July 17, 2014: The Dow Jones Industrial Average finished up yesterday (Wednesday) for its 15th record-breaking close in 2014. U.S. Federal Reserve Chairwoman Janet Yellen testified before Congress, reiterating that the economy remains vulnerable to a struggling job market and stagnating wages - two reasons why the central bank will continue its loose monetary policy in 2014.

Here are the top headlines in the stock market today you should know to make your Thursday profitable...

Another Big Fed Week: The Bernanke Monetary Policy Testimony to Congress

By , Contributing Writer, Money Morning -

There's a key market-moving event this week investors can't miss: the semi-annual Ben Bernanke monetary policy testimony before Congress on Wednesday (House) and Thursday (Senate).

Congressional legislation known as Humphrey-Hawkins (now expired) required the Federal Reserve's Open Market Committee to report to Congress on both the state of the U.S. economy and monetary policy twice a year (February and July). The Fed Chairman testifies before Congress in conjunction with the report.

Traditionally, it had been one of the most important public appearances by the Fed Chairman, back when speeches were rare. But now with news conferences after many Fed meetings, these appearances are less important.

However, this time may be different, as it will be Ben Bernanke's last time in front of Congress before his term ends in 2014. The testimony may once again be a market moving event due to the market's recent concern about the Fed's 'tapering' of quantitative easing (QE).

Which Ben Will Deliver the Monetary Policy Testimony?

The markets have been confused lately by seemingly contradictory statements coming from various Fed members and particularly from Bernanke himself.

In fact, Bernanke's actions lately remind me of Batman villain Two-Face, aka former District Attorney Harvey Dent.

For example, one time he said that winding down QE may happen as soon as the middle of next year. But then, like last week, he flips saying the Fed will not taper the $85 billion a month bond purchasing plan until the U.S. economy is stronger.

He said, "highly accommodative monetary policy for the foreseeable future is what's needed [for the economy]."

Bernanke added that there would not be an automatic rise in interest rates either when the U.S. unemployment hit the Fed's target of 6.5%.

These statements sent the stock market solidly higher with both the S&P 500 and the Dow Industrials nearing their record highs. The S&P 500 and Dow Jones Industrial Average hit new record highs Monday closing at 1,682.50 and 15,484.26.

Traders believe the 'Bernanke put' was back in play. That is, Bernanke will do everything he can to keep stock prices higher.

So which Ben Bernanke will testify before Congress this week? Accommodative Ben or Tightening Ben?

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We're Deep In The March Toward Economic Socialism

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

Have you noticed that the world is on a creeping - some (that would be me) would say cascading - slide into socialism?

It started with one giant step in the direction of economic socialism.

Economic socialism is specifically the shared risk the public has been yoked into pulling on behalf of banks.

The unmistakable and indelible footprints of socialism's latest forward march have been made by collectivist central bankers, pushed forward (at least that's the direction for them) by their constituents, the bankers of the world.

The bankers' jackboots are filled with stinking feet itching from the fungus of greed. And sadly, the sole of those boots bears the unmistakable "Made in America" stamp.

What's flooded into all those succeeding footprints is the stagnant future we all face. The march towards global hegemony of bankers' birthrights makes that evident.

It's not ironic that bankers espouse capitalist, free-market doctrines, but under cover of their ostensible handlers - their central bankers - prosper and propagate behind a Marshall Plan whose manifesto is socialized risk; it's sickening.

The moral hazard of socialized risk, of economic socialism, is unfettered.

The United States let the biggest banks in America get bigger. We let them bridle us, saddle us, and ride us into the ground. And they are all bigger now.

How can there be any free market discipline if there is no free market? How can moral hazard be corralled if there are no fences around the risks banks are allowed to take, given their size and power?

We're facing QE4ever (that's quantitative easing) on account of the banks being subject to lawsuits and an attack on their capital.

Oh, you didn't get that?

Here's the real reason we have stimulus to the nth degree here in America...

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Today's FOMC Meeting Too Early for Action

By , Contributing Writer, Money Morning -

There is little doubt that the struggling U.S. economy could use some goosing, and the U.S. Federal Reserve is in a position to deliver a good boost.

But, a move isn't likely at the conclusion of today's (Wednesday) Federal Open Market Committee (FOMC) meeting.

While a fresh spate of data suggests new steps from the central bank are warranted, many economists warn that the economy doesn't need immediate action - especially since the prior moves from the Fed haven't been very effective.

Growth has clearly slowed and unemployment remains elevated, but the sluggish pace of the U.S. economy may not be slow enough to compel the Fed to make an impactful move today, and any Fed decisions will be pushed to later in the year.

Today's FOMC Meeting: Not Ready for QE3

The U.S. Commerce Department last week reported that the U.S. economy grew at a paltry 1.5% annual rate in the second quarter, down from 2% in the first. Plus, the Labor Department reported initial jobless claims ticked up in the latest week while the unemployment level remains at a sickly 8.2%.

Fed chief Ben Bernanke maintains that his team is prepared to take further action if unemployment stays high, but he remains vague on what action might be taken.

With the reeling recession in Europe and a slowdown in stalwart China, global growth has been severely dented and is weighing on the U.S. economy. Those factors increase the odds of a third round of quantitative easing (QE3), but the Fed may not pull the trigger Wednesday.

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The Insidious Truth About Federal Reserve Policy

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

So far, U.S. Federal Reserve policy has done nothing to help the economy. To the contrary, it's actually been quite destructive.

Yet Federal Reserve Chairman Ben S. Bernanke and his cohorts will likely expand upon their ineffective policies next week by announcing a new "Operation Twist."

That begs the question: Why?

If ultra-low rates and quantitative easing haven't put a dent in unemployment or spurred economic growth, then why expand on those programs?

The answer: Because the Fed doesn't work for the American public - it works for Wall Street .

That's right. It's not the economy the Fed has on life support - it's the banks.

America's banks are facing huge litigation costs. Worse, they've grown entirely dependent on the Fed's easy-money policy.

So the Fed is going to bail them out - again.

And we're going to be the ones who pay for it.

Federal Reserve Policy Follies

To really understand what's at play here, let's start by taking a closer look at the Fed's misguided policies.

There are two reasons why Federal Reserve policy hasn't worked: First, the Fed's artificially low interest rates are handicapping the economy. And second, Bernanke is telegraphing Fed policy decisions to the markets, giving speculators an edge over investors.

By keeping overnight lending rates between 0.00% and 0.25%, banks can borrow at next to nothing and buy risk-free U.S. T reasury securities that yield a lot more than their financing costs. The result is a "positive interest rate spread," which is the basis for banks' revenues and profits.

Additionally, banks can borrow more money by using their Treasury securities as collateral for overnight and "term" loans. Then they use the cash they borrow to buy more Treasuries. They do this over and over again to leverage themselves.

Essentially, banks have become giant hedge funds that finance their "trading books" with virtually free money, courtesy of the Fed's zero-interest-rate policy.



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Helicopter Ben is at It Again: Four Ways to Protect Yourself From the Fed’s Next Flyover

By , Money Morning -

The circus known as the debt-ceiling debate may have left town - at least for the time being - but there's still one sad clown left standing squarely in the center of the ring.

I'm talking about U.S. Federal Reserve Chairman Ben S. Bernanke - otherwise known as "Helicopter Ben."

Bernanke got the nickname "Helicopter Ben" from a speech in 2002, in which he announced that deflation was a real worry (this was just when house prices were taking off) and that one possible solution would be to fly around the country dropping $100 bills from helicopters.

Strange as it sounds, that might actually have been a better approach than the one he ended up taking.

Attack From the Sky

Small towns in the Midwest and the working poor of such downtrodden urban environments as Cleveland and Detroit could certainly use a visit from the kindly flying Santa Claus. At least those Americans would have put the money to good use.

But so far, Bernanke's helicopter has only hovered over Wall Street, and his generosity has had a negative effect on the U.S. economy as a result.

His first two rounds of quantitative easing had three major consequences:

  • Higher inflation.
  • Higher unemployment.
  • And higher borrowing costs for average Americans.
In fact, the only thing Bernanke's policies have managed to suppress is economic growth.

U.S. gross domestic product (GDP) increased by just 1.3% in the second quarter - an indication that an already wobbly economic recovery could tip completely over in the second half of the year.

But if you think that means we'll get a reprieve from Helicopter Ben's razor-sharp rotors, you're wrong. To the contrary, he's gearing up for another flyover - a third round of Treasury purchases (QE3).

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No Change in Fed Monetary Policy Likely, Bernanke Calls For Deficit Reduction

By , Associate Editor, Money Morning • @DavidGZeiler -

Despite the stream of data showing the U.S. economic recovery has yet to gain traction, U.S. Federal Reserve leaders are signaling there will be no change in monetary policy and that serious deficit reduction would be far more beneficial.

In a speech to the International Monetary Conference Tuesday in Atlanta, U.S. Federal Reserve Chairman Ben S. Bernanke acknowledged "some loss of momentum" in the employment numbers - last week's payrolls report showed that companies added just 83,000 workers in May, down from 268,000 in April - but said the Fed can do little to combat the problems now holding the economy back.

"The U.S. economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effects of the Japanese disaster to global pressures in commodity markets," Bernanke said. "In this context, monetary policy cannot be a panacea."

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China Monetary Policy in Focus as Reserves and Lending Surge

By , Contributing Writer, Money Morning -

China's foreign-exchange reserves climbed to a world record $2.85 trillion last quarter as bank lending continued to exceed the government's annual target, putting more pressure on the central bank to increase borrowing costs to dampen down liquidity and tame inflation.

China's foreign reserves jumped by $199 billion in the fourth quarter, a much larger increase than economists expected. The People's Bank of China (PBOC) may need to raise benchmark interest rates, boost reserve requirements for lenders and allow faster yuan appreciation, as a result, according to economists from Standard Chartered Plc and Credit Agricole CIB.

"All eyes are going to be on what new policies the central bank can bring to the table,"Jinny Yan, a Shanghai-based economist at Standard Chartered told Bloomberg News. "But there's still going to be a lot of excess liquidity in the market in the first half of the year."

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