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eazyb81
07-13-2011, 10:05 AM
Bernanke: Fed May Launch New Round of Stimulus


ECONOMY, FED, BERNANKE,
Posted By: Jeff Cox | CNBC.com Staff Writer

CNBC.com
| 13 Jul 2011 | 10:54 AM ET

Federal Reserve Chairman Ben Bernanke told Congress Wednesday that a new stimulus program is in the works that will entail additional asset purchases, the clearest indication yet that the central bank is contemplating another round of monetary easing.

Bernanke said in prepared remarks that the economy is growing more slowly than expected, and should that continue the central bank stands at the ready with more accommodative measures.

"Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation," he said
"However, given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate."

Markets reacted immediately to the remarks, sending stocks up sharply in a matter of minutes. Gold prices continued to surge past record levels, while Treasury yields moved higher as well.

But some analysts pointed out that, while Bernanke was suggesting the Fed might add stimulus, he also was saying that the current "soft patch" may prove temporary.

"The bottom line is that he has to say he will respond if needed, but it seems he's saying it more as lip service than anything because ultimately he still expects that this slowdown was temporary," said Tom Porcelli, chief U.S. economist for RBC Capital Markets in New York.

The Fed recently completed the second leg of its quantitative easing program, buying $600 billion worth of Treasurys in an effort to boost liquidity and get investors to purchase riskier assets.

While stocks rose about 6 percent through the course of the program, nicknamed QE2, economic progress has remained elusive.

Delivering his twice-a-year economic report to Congress, Bernanke laid out three options the central bank would consider.

Bernanke said the Fed could launch another round of Treasury bond buying, the third such effort since 2009. It could cut the interest paid to banks on the reserves they hold as a way to encourage them to lend more.

The Fed could also be more explicit in spelling out just how long it planned to keep rates at record-low levels. That would give investors confidence about the Fed's efforts to continue supporting the economy.

Bernanke maintained that temporary factors, such as high food and gas prices, have slowed the economy. He said those factors should ease in the second half of the year and growth should pick up. But if that forecast proves wrong, he said the Fed is prepared to do more.

"The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," Bernanke told the House Financial Services Committee on the first of two days of Capitol Hill testimony.

Bernanke also said it was possible that inflationary pressures spurred by higher energy and food prices may end up being more persistent than the Fed anticipates.

He said that the central bank would be prepared to start raising interest rates faster than currently contemplated, if prices don't moderate.

Bernanke's comments about inflation spoke to concerns expressed by some regional bank presidents at the Fed. The have criticized the Fed's bond-buying program, saying it has increased the risk for higher inflation.

The Fed has kept its key interest rate at a record low near zero since December 2008. Most private economists believe the Fed will not start raising interest rates until next summer. And some say the Fed won't increase rates until 2013, based on the slumping economy.

Minutes to the Central Bank's June meeting suggested that, while some members were pondering the possible need for additional easing amid a weak economy, the Fed is not yet ready to take any further action.

But the minutes also reflected divisions within the central bank over further easing, and Bernanke's speech provided a further indicator that a QE3 move is far from off the table.

"Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further," Bernanke said.
Bernanke was testifying after the government released a dismal jobs report last week. The economy added just 18,000 jobs last month, the fewest in nine months.

And the May figures were revised downward to show just 25,000 jobs added—fewer than half of what was initially reported. The unemployment rose to 9.2 percent, the highest rate this year.

Companies pulled back sharply on hiring after adding an average of 215,000 jobs per month from February through April.

The economy typically needs to add 125,000 jobs per month just to keep up with population growth.

And at least twice that many jobs are needed to bring down the unemployment rate.

At the June meeting, the central bank lowered its economic growth forecast for the second half of the year and said unemployment wouldn't fall below 8.6 percent this year.
—AP and Reuters contributed to this report.

http://www.cnbc.com/id/43739458

FD
07-13-2011, 10:08 AM
Good. With inflation below target and the labor market remaining so weak, the Fed really has no excuse to just sit on its hands. That said, I'd be surprised if they actually went through with it, most of the Board of Governors opposes any more monetary stimulus.

LOCOChief
07-13-2011, 10:14 AM
goody I can't wait to get mine! I'm going to start sitting on my fat ass now and wait for it but they better not make me wait long.

eazyb81
07-13-2011, 10:15 AM
Good. With inflation below target and the labor market remaining so weak, the Fed really has no excuse to just sit on its hands. That said, I'd be surprised if they actually went through with it, most of the Board of Governors opposes any more monetary stimulus.

Do you really expect another round of asset purchases to positively impact the weak labor market though? The unemployment level at this point seems structural, not cyclical. The people who have been unemployed 2+ years lack the skills and experience to gain meaningful work in this new market. I forsee 8+% unemployment for at least the next two years.

FD
07-13-2011, 10:20 AM
Do you really expect another round of asset purchases to positively impact the weak labor market though? The unemployment level at this point seems structural, not cyclical. The people who have been unemployed 2+ years lack the skills and experience to gain meaningful work in this new market. I forsee 8+% unemployment for at least the next two years.

Can you point me to some evidence for it being structural? I've seen a lot of research on this question and most suggests little structural component to the current weakness in the labor market. I agree long-term unemployment has eroded skills and probably increased NAIRU above 5%, but even that is 4% below where we are now.

HonestChieffan
07-13-2011, 10:22 AM
Do you really expect another round of asset purchases to positively impact the weak labor market though? The unemployment level at this point seems structural, not cyclical. The people who have been unemployed 2+ years lack the skills and experience to gain meaningful work in this new market. I forsee 8+% unemployment for at least the next two years.

When I was in college back in the dark ages, full employment was usually seen in the neighborhood of 94%. Since then, the government has manipulated the way it is figured so many times for their own benefit its hard to know if the same 94% is even figure-able today.

That said, I am beginning to wonder if 7-8% wont be the new norm. I can see the crafters of the math doing a modification that will make the reported number less emotional for the masses as we settle into accepting 7-8% unemployment as normal and nothing to worry about. That would take a lot of pressure off Washington to fix it if they can sell the idea that it is the norm.

eazyb81
07-13-2011, 10:39 AM
Can you point me to some evidence for it being structural? I've seen a lot of research on this question and most suggests little structural component to the current weakness in the labor market. I agree long-term unemployment has eroded skills and probably increased NAIRU above 5%, but even that is 4% below where we are now.

No evidence, just my opinion based on information I've read over the last few years. The housing market is dead and manufacturing continues to be outsourced. I don't expect either trend to reverse anytime soon, as housing was driven by the credit bubble and manufacturing is going to the lowest priced labor due to increasing globalization. I believe a significant percentage of total unemployment is due to these two factors. Do you disagree?

loochy
07-13-2011, 10:41 AM
Bernanke maintained that temporary factors, such as high food and gas prices, have slowed the economy. He said those factors should ease in the second half of the year and growth should pick up. But if that forecast proves wrong, he said the Fed is prepared to do more.

I highly doubt that those factors are temporary.

eazyb81
07-13-2011, 10:44 AM
I highly doubt that those factors are temporary.

and certainly will not go away with another round of asset purchases that will drive commodities higher.

FD
07-13-2011, 10:50 AM
No evidence, just my opinion based on information I've read over the last few years. The housing market is dead and manufacturing continues to be outsourced. I don't expect either trend to reverse anytime soon, as housing was driven by the credit bubble and manufacturing is going to the lowest priced labor due to increasing globalization. I believe a significant percentage of total unemployment is due to these two factors. Do you disagree?

For one thing, I do expect a housing market recovery in the second half of this year, but I could be wrong about that.

With respect to manufacturing, I do disagree. Job growth in manufacturing during the recovery has been faster than almost any sector, in many respects it is the bright spot of what has been a dismal recovery, at least for jobs.

http://www.statesman.com/business/recoverys-unsung-bright-spot-manufacturing-402792.html

petegz28
07-13-2011, 10:57 AM
Dollar tumbles on Bernanke, euro rebounds
http://www.reuters.com/article/2011/07/13/us-markets-forex-idUSTRE74U02L20110713


Gas and food aren't going to come down much if he keeps hammering the $. In fact just the opposite will happen most likely.

HonestChieffan
07-13-2011, 11:00 AM
looks like another swing in grains. Hope y'all understand food is gonna skyrocket.

dirk digler
07-13-2011, 11:04 AM
That said, I am beginning to wonder if 7-8% wont be the new norm.

I am starting to think that as well. Companies in the last 2 years have learned how to do more with less and throw in how good we IT people are we have made some people expendable. :)

ROYC75
07-13-2011, 11:32 AM
looks like another swing in grains. Hope y'all understand food is gonna skyrocket.

Already have gone up, supply & demand for transportation is driving the market up, add the fuel to it and it's a double hit.

Of course, none of this has anything to do with a a 20% shortage of drivers & trucks since Obama took office ? :shrug:

HonestChieffan
07-13-2011, 11:54 AM
Already have gone up, supply & demand for transportation is driving the market up, add the fuel to it and it's a double hit.

Of course, none of this has anything to do with a a 20% shortage of drivers & trucks since Obama took office ? :shrug:


add rail shut down west of Omaha, north of KC and North of Sioux City and the river barges likely wont run till midwinter......elevators will be piling like mad.

Stewie
07-13-2011, 04:02 PM
For one thing, I do expect a housing market recovery in the second half of this year, but I could be wrong about that.

With respect to manufacturing, I do disagree. Job growth in manufacturing during the recovery has been faster than almost any sector, in many respects it is the bright spot of what has been a dismal recovery, at least for jobs.

Keep drinking that Kool-Aid. Housing will rebound? People with nominal incomes are completely shut out of the market. Housing prices continue to decline because the millions of people that were eligible in '06 no longer exist.

Manufacturing? In the US? Who are these people? It's a service economy that's the golden goose. We've been told this for YEARS!!! I sell you insurance, you sell me insurance.... Stoopid!

Stewie
07-13-2011, 04:22 PM
Oh, and QE3 has been planned for months. The Fed was hoping that all the "good" news they were shlepping was going to do the trick. Sorry. No jobs, no equity and no money can't overcome "consumer confidence."

Bewbies
07-13-2011, 08:14 PM
All this QE is just hoping to inflate the debt away. LMAO

Further, how in the hell does someone see a housing recovery coming this year? Everything in that sector is getting worse. Everything.

petegz28
07-13-2011, 09:49 PM
All this QE is just hoping to inflate the debt away. LMAO

Further, how in the hell does someone see a housing recovery coming this year? Everything in that sector is getting worse. Everything.

Inflation is nothing more than a hidden tax. The realy method to the madness of the QE programs is to give the Fed Gov the cheapest rates possible to continue their borrowing. They say it is to spur economic growth but at every turn it seems there is some new regulation coming down the pipe from this Admin to counter that.

Example:

Low interest rates but....no more drilling in the Gulf
Low interest rates but....banks must increase their capital reserves
Low interest rates but....you now HAVE to provide health insurance for your employees

As part of a congressional investigation into burdensome regulations, Rep. Darrell Issa (R-Calif.) is asking the business community for help in determining how certain government regulations can hurt job growth.

Issa cites the Obama administration’s own estimate that new regulations issued in 2010 are costing Americans an additional $28 billion and destroying thousands of jobs.

Issa, the incoming chairman of the House Oversight and Government Reform Committee, sent a letter to 150 different business trade associations and companies in December asking how new regulations adopted in 2010 had affected the nation’s employers and employment.

The committee released the text of the letter on Tuesday.

“In fiscal year 2010, federal agencies promulgated 43 major new regulations,” the letter said. “These regulations ranged from new limits on ‘effluent’ discharges to new rules for Nationally Recognized Statistical Rating Organizations. The new limits on ‘effluent’ discharges from construction sites will cost $810.8 million annually resulting in the closure of 147 construction firms and the loss of 7,257 jobs.”

The Obama administration estimated the cost of the 43 new regulations to be approximately $28 billion — “the highest single year increase in estimated burden on record, resulting in thousands of lost jobs,” the letter said. “This new burden is on top of the $1.75 trillion estimated burden of existing regulations.”