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The Fed

Article Index

The Next Fed Chief Will Be the Most Powerful of All Time

By , Associate Editor, Money Morning • @TaraKateClarke -

The U.S. Congress established three core objectives for monetary policy in the Federal Reserve Act of 1913: maximum employment, stable prices, and moderate long-term interest rates.

But in addition to acting as steward of the economy, the Fed's role has expanded over the years.

The Great Recession, a need for corporate bailouts, and concerns over the Fed's secrecy brought about recent changes to its institutional identity.

Certainly we've had a renewed focus on the Fed's responsibility as a regulator.

People wanted to see - needed to see - a Fed that operates no longer as a creature of the banks, but as a watchdog instead.

Emblematically, the Dodd-Frank Wall Street Reform and Consumer Protection Act were signed into law in July 2010.

With it, Dodd-Frank brought the most substantial changes to financial regulation since the aftermath of the Great Depression. Particularly, a greater breadth of regulatory power was given to the Fed.

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Exclusive: Obama Tells Money Morning Why He Just Loves Larry Summers…

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

Says Obama:
Larry Summers for Fed Chief... He's got my vote. Absolutely!
Why? You just have to get to know the guy and you'll see he's perfectly qualified to head the Federal Reserve.
Here's just part of his resume.
From 1982-1983, Larry Summers was on staff at Ronald Reagan's Council of Economic Advisers. That's where Lawrence of Enablers earned his "Deregulate Everything" T-shirt.
After his brief stint on the Gipper's Council, where he was taught how real pros corral free markets for personal profit, the Enabler headed back to Harvard to teach kids (and himself) how to squeeze personal wealth out of mere economic theory.
He got his next shot at stardom as Chief Economist of the World Bank in 1991. He was there until 1993.
While there he wasted no time shining a light on himself.
In a 1991 interview he famously said:
Read on here...

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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Why’s There So Much Dissension Inside the Fed?

By , Associate Editor, Money Morning -

There's considerable dissension within the ranks at the Federal Reserve, with many of Chairman Ben Bernanke's colleagues saying the Fed's monthly purchase of $85 billion in bonds should end by late this year.

"About half" of 19 Fed members "indicated that it likely would be appropriate to end asset purchases later this year," according to minutes of the June Fed policy-making committee meeting, released Wednesday.

Ending QE3 could have enormous implications for the stock market - whose four-plus-year bull market has been buoyed by the central bank's stimulus - and for the economy as a whole.

But while there's growing sentiment inside the Fed to end QE, a majority of the 12 voting members of the policy-making Federal Open Market Committee hope to extend the bond-buying into next year.

Still, the Fed's June 18-19 meeting could prove to be a turning point, given the amount of discord at the meeting.

The minutes add some context to Bernanke's comments at a press conference immediately after the meeting in which he said the Fed could begin scaling back QE3 this year and end it altogether by mid-2014.

The markets dipped immediately after Bernanke's comments but then recovered some.

"They're Making It Up As They Go Along"

"To me, the real news is that you've got dissension inside the Fed now," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "My initial read is there's a lot more dissension than usual.

"And," Fitz-Gerald said, showing his longtime disdain for the Fed, "the level of dissension reinforces the notion that they don't know what they're doing and they're making it up as they go along."

Money Morning Capital Wave Strategist Shah Gilani, meanwhile, said the June FOMC showed legitimate concerns among members.

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These Charts Show Why QE3 Hasn’t Triggered Inflation – So Far

By , Associate Editor, Money Morning • @DavidGZeiler -

When you pump massive amounts of money into an economy, as the U.S. Federal Reserve has done with QE1 through QE3, you're supposed to get some measure of inflation.

And yet despite some $2.3 trillion of quantitative easing since 2008, the core inflation rate has actually fallen over the past year from about 2.25% to 1.7% as of May.

It defies both common sense and monetary theory - or at least until you find out where all that QE3 money ended up.

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You can Figure out When the Fed Might Start Tapering

By , Money Morning -

Although you might think the markets simply respond any time Ben Bernanke sneezes, his "cold cycle" is not one of the indicators that will spell the slowing

and eventual cessation of the printing press at the Fed.

There actually is a mathematical formula used by the Federal Reserve to determine when to stop the presses.

I could give you the formula and it would look like this:

POP2 = [1-(%∆POP) m*m] *POP1.

Or, I could share the link to the Federal Reserve's Jobs Calculator in Atlanta.

This is the same calculator used by the Fed to determine when the jobs market and the unemployment rate will align properly. And when they do, it will signal to the Federal Reserve that it might be a good time to start tapering its $85 billion a month bond buying program.

This is what needs to happen: The economy will have to show new job growth.

The Fed is looking for the creation of 150,000 to 200,000 new jobs each month for 6 months. This is how we look now:

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Bill Gross: Why QE Will End Before the Fed Wants It To

By , Money Morning -

Legendary bond guru Bill Gross doesn't think too highly of the Federal Reserve and Ben Bernanke's monetary policies.

"There comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts," Gross writes in his June investment outlook titled Wounded Heart.

Gross believes that QE, which he describes akin to a bad dose of chemotherapy, will end later this year but not because of a suddenly strengthening economy.

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Do We Really Need the Federal Reserve System?

By , Money Morning -

Abolishing the Federal Reserve System might seem like a drastic idea, but not when you get the full story...

You see, Congress created the U.S. Federal Reserve System to restore public confidence, provide the banking system a source of liquidity that would prevent its collapse and protect the public against inflation.

A century later, the banking system is so big its risks dwarf the Fed's liquidity capacity, and what cost a buck back then now will set you back $21.

That's why we asked Money Morning Chief Investment Strategist Keith Fitz-Gerald to explain how the Federal Reserve System actually helps a country's economy.

Most importantly, we wanted to know if the United States - or any country - even needs the Fed anymore.

Just listen to Fitz-Gerald's answer in the following interview.