Entries in Federal Reserve (106)


US Employers Sitting on Piles of Cash

iStockphoto/Thinkstock(NEW YORK) -- Based on Friday's jobs report from the Department of Labor, the jobs market has improved in the past year, but unemployment is still way above average levels. Brian Hamilton, CEO of the financial research firm Sageworks, says businesses are very cautious. “Not only are companies not really hiring a ton but they’re not borrowing a bunch either.” Most firms have solid balance sheets. “The default rate for private companies is going down meaning they’re much more credit worthy and they’re much more solvent.”

But Hamilton says companies and their senior executives are also risk averse. “They really are just reluctant to take on overhead much more so than in the past.” Hamilton’s views are echoed in a new report from Federal Reserve, which says US firms are sitting on a record pile of cash. Non-financial corporations held $1.78 trillion in cash and other liquid assets in the first three months of this year.

Copyright 2013 ABC News Radio


Stocks Close Down After Fed Stimulus Debate

Hemera/Thinkstock(NEW YORK) -- The Federal Reserve is considering tempering its efforts to stimulate the economy, according to minutes of their meeting released Wednesday afternoon.

The Dow Jones Industrials had been trading down for much of the day but took a dive late in the afternoon after the Fed's release.  The index ended the day down 108 points at the close of New York trading, finishing at 13,927.54.

The Nasdaq Composite closed down 49.18 points at 3,164.41. The S&P 500 gave up 18.99 points to close at 1,511.65.

Fed members discussed whether to curb the stimulus, but made no decisions, according to Wednesday's meeting minutes. The Fed has said previously that it would not change course until there’s substantial improvement in unemployment.

The Fed’s moves have been supporting the stock and housing markets, while pushing down interest rates — allowing consumers to borrow cheaply.  Many Federal Reserve officials are concerned about the costs and risks of expanding its balance sheet, or what is referred to as printing money.

Concerns about what happens to the economy when the Federal Reserve winds down its stimulative efforts are not new, but many economists were surprised by the plain statements in Wednesday’s minutes.

Naysayers of Federal Reserve policy have long argued that the Fed’s measures have been artificially boosting the economy, leading to stronger closing bells.  More optimistic observers argue that the economy is recovering and may soon be able to thrive without the central bank’s support.

Copyright 2013 ABC News Radio


Federal Reserve Split on When to Halt QE3; Markets End the Day Slightly Lower

iStockphoto/Thinkstock(NEW YORK) -- Members of the Federal Reserve are split on whether to keep stimulating the economy until the end of 2013, according to minutes from a Fed meeting released Thursday afternoon.  Some members of the Fed believe that QE3 measures to boost the U.S. economy should be pulled back before the end of the year.
Economist Diane Swonk says that it's important for the Fed to get on record that there is some debate, but she thinks that QE3 measures will last until 2013 if not well into 2014, unless the unemployment rate gets to or below 7 percent.  The current unemployment rate is 7.7 percent, with new data due Friday morning.
In a previous announcement the Fed said that it expects to keep interest rates low until unemployment falls below 6.5 percent.   This was the first time in its history that the Fed set specific targets for its monetary policy.
Now the Fed is making public debate about how long QE3 will last.  It said it will continue QE3 until there is a substantial improvement in the labor market without defining what substantial improvement means.

So what does QE3 mean for you?

  • Your 401K will fare well because this move likely boosts stock prices.
  • Home Mortgages: Rock-bottom rates will likely last for the foreseeable future.  So this is a great time to buy if you can get a loan.  Buying mortgage-backed securities may end up encouraging banks to give out more home loans.

The markets moved a bit lower on the release of the Fed's meeting minutes, but have since recovered some of their loses.  The Dow closed down 21 points, while the S&P and Nasdaq lost three and 11 points, respectively.
Copyright 2013 ABC News Radio


US Household Debt Falls to 29-Year Low

George Doyle/Stockbyte/Thinkstock(NEW YORK) -- While politicians in Washington stumble toward the fiscal cliff, American households have really cleaned up their act.

According to the Federal Reserve, one key measurement of household debt in the third quarter plunged to its lowest level in 29 years.  The share of loan payments to disposable personal income fell to 10.61 percent.

This means that if the economy improves, many consumers may have more money to spend.  But right now, that remains a big "if."

Unless there’s a deal, the fiscal cliff could do real damage to the economy.  The first and best-known effect would be sweeping tax hikes.

“By jacking up taxes on so many taxpayers it will squeeze purchasing power,” says Greg Ip, U.S. economics editor of The Economist magazine.

Many consumers and businesses would cut back on spending.

“They just decide to pull back, not to spend, not to buy that house, not to initiate that new business venture and that would multiply the negative impact,” Ip says.

The third effect would come from sharp and sudden government spending cuts.

“You’ll see layoffs in the defense industry, layoffs in any industry that does business with the federal government as federal spending is cut back sharply,” says Ip.

Copyright 2012 ABC News Radio


Consumers Spending Less with Credit Cards, Says Fed

George Doyle/Thinkstock(WASHINGTON) -- More families may be putting their financial houses in order. The government reports that credit card spending is down, despite an increase in available consumer credit.    
The Federal Reserve reports Americans' credit card borrowing dropped nearly $3 billion from August to September -- the third drop in four months.
The Consumer Federation's Stephen Brobeck says though Americans are spending, they are just using pay-as-you-go debit cards and cash rather than credit.

Still, consumers are taking on more debt, according to the Fed report, released Wednesday. The agency says consumers took out more student and auto loans in September.

Copyright 2012 ABC News Radio


Bernanke Defends Fed's Stimulus Measures 

Mark Wilson/Getty Images(NEW YORK) -- Federal Reserve chairman Ben Bernanke says the bank's stimulus measures have helped the global economy, in spite of criticism from abroad, the BBC reports.

Brazil has criticized the United States for keeping interest rates low and weakening the dollar, saying that such measures has hurt emerging economies. Christine Lagarde, chief of the International Monetary Fund, also warned Sunday of asset bubbles consequently developing in emerging nations. But Bernanke defended the Fed's actions by saying the moves have boosted the global economy, the BBC says.

The Fed has kept a low interest rate policy for several years, pumping over $2 trillion into the national economy to encourage growth, according to the BBC.

Copyright 2012 ABC News Radio


Bad Day for the Markets, Despite Good News from the Fed

Hemera/Thinkstock(NEW YORK) -- The markets on Wednesday suffered their worst day in months, despite an encouraging report from the Fed.
The Dow dropped 129 points, the Nasdaq lost 13 and the S&P gave up nine.
Meanwhile, the Fed offered a rosy outlook on growth in its latest "Beige Book."  It says nearly all parts saw stronger economic growth helped by an improving housing market since the middle of August. At the same time, consumer spending was flat or only up slightly in most districts.
The Labor Department says the nation's employers advertised slightly fewer jobs in August than July. At the same time, they filled the most jobs reported in three months.
United Airlines is raising prices on most domestic flights by up to $10 per round trip. Fare Compare says it's the 12th attempt this year by airlines to raise fares, but only four have succeeded.
Want it today? Two more retailers say no problem, as long as you order by noon.  Amazon and Wal-Mart are the latest to offer same-day delivery in time for holiday shopping.

Copyright 2012 ABC News Radio


Federal Reserve Bailing Out Obama, Paul Ryan Says

SAUL LOEB/AFP/GettyImages(WASHINGTON) -- As the Federal Reserve pumps billions of dollars into the economy with the hope of stimulating job creation, Republican vice presidential nominee Paul Ryan said that the Fed is bailing out President Obama “at the expense of monetary policy.”

The third round of quantitative easing, known in financial circles as QE3, will enable the Fed to purchase $40 billion of mortgage-backed securities on a monthly basis

“I’m not a fan of QE3. I wasn’t a fan of QE2 either,” Ryan, R-Wis., told Christian Broadcasting Network’s David Brody in an interview conducted Friday but aired today. “In the long run it will do more harm than good but what this is, it’s the Federal Reserve and the monetary policy trying to bail out the fact that we have terrible leadership on fiscal policy from President Obama.”

Ryan said that savers and senior citizens living on fixed incomes “are losers” as a result of the Fed’s move, and he said it “undermines the ultimate credibility of our currency” — something he called “a necessary pre-condition for economic growth.”

“We have loose money already so it’s not a question of having too tight of a monetary policy. We have exceptionally loose monetary policy,” Ryan said. “What we don’t have is White House leadership, Senate leadership on getting this debt under control, on getting tax reform, on cleaning up the regulatory system. We have really bad fiscal policy, it’s crippling growth, it’s why we have the highest poverty rates in a generation, it’s why we have 23 million people out of work.”

During a campaign stop in Pennsylvania on Saturday, Ryan also called the move “sugar-high economics.”

Asked by Brody whether there was “political motivation” behind the nonpartisan Fed’s move, Ryan, the chairman of the House Budget committee, declined to judge Fed chairman Ben Bernanke’s motives behind the timing of the announcement.

“I don’t think that’s something that’s appropriate to do from a perspective of a person in my position but I don’t think it’s a good idea to do this easing,” Ryan said. “The Fed balance sheet is approaching around three trillion dollars. This kind of easing hurts savers, questions the credibility of our currency and I think ultimately the costs outweigh the benefits.”

Ryan is on a three-state campaign swing today, stopping in Indianapolis, Ind. and Des Moines, Iowa before traveling to Bedford, Mass. later this evening.

Copyright 2012 ABC News Radio


Fed 2012 GDP Growth Forecast Worsens; Unemployment Forecast Unchanged

Chip Somodevilla/Getty Images(WASHINGTON) -- Among its announcements Thursday was the Fed’s prediction for unemployment, GDP growth and inflation rates.
The Federal Reserve still thinks unemployment won't fall below eight percent this year.  The unemployment rate is currently 8.1 percent.  But the central also says that next year the unemployment rate could fall to 7.6 percent and down to 6.7 percent in 2014.
Inflation, the Fed says, will likely remain at or below two percent for the next three years.
As for GDP, the Fed has changed its previous forecast to expect slower growth this year, but expects a somewhat better situation in coming years.
The Fed now expects growth to be no stronger than two percent this year. That's down from its forecast of 2.4 percent in June.  The Fed says growth will accelerate next year to as much as three percent, up from June's forecast of as much as 2.8 percent. For 2014, the Fed projected growth between three percent and 3.8 percent.
The Fed may be taking into account the effects of its newly announced QE3 on future growth in its new forecasts.  All this being said, predictions are generally risky business, let alone those looking as far out as 2014.
For those looking for further explanation on how QE3 might work:
The Fed wants to get money moving in the economy, which is stuck in many ways.
Until now, the Federal Reserve was buying up Treasury bonds.  This depresses the interest rate available on these bonds and prices of assets like stocks go up.  The hope then is that people find they are worth more (401(k)s go up) and businesses can borrow at lower rates.  People and businesses then spend more, boosting output and hiring.  This has worked to some extent in the past in the other two rounds of easing since the financial crisis began in late 2007.
The Fed has been criticized for buying Treasury bonds to finance the U.S. debt.  So perhaps to avoid that criticism the Fed is now buying mortgage-backed securities.
The intended effect is similar to buying Treasury bonds -- as the Fed says, to “put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
Buying mortgage-backed securities could take these off banks’ books, possibly boosting lending and spending. Consumers may find it easier to refinance and buy new homes.  All of these things have a ripple effect on the economy.  As the economy grows, hiring grows.
By saying they may keep doing what they are doing until the ripple effect gets to the job market, the Fed is hoping to provide some certainty to employers and investors.
The gridlock in Washington makes the Fed one of the few entities able to do anything right now to help the economy. Thursday’s action is not expected to do much, but it’s one of the few moves available to policymakers.
Copyright 2012 ABC News Radio


Fed Stimulus Plans Push Indexes Higher

Hemera/Thinkstock(NEW YORK) -- The U.S. stock markets liked what they heard from the Federal Reserve Thursday. The Dow climbed more than 200 points on news the central bank plans to step in if the job market does not improve.
The Dow closed at 13,539.86, up 206.51 points, or 1.6 percent.  Thursday’s close is the highest since Dec. 28, 2007.    
Both the S&P and NASDAQ closed higher as well, up 23.43 points and 41.52 points, respectively.
Higher stock prices were in part what the Fed was hoping to achieve with Thursday’s announcement.  The central bank will purchase $40 billion per month in mortgage-backed securities and extend the average maturity of its securities holdings through the end of the year.  Federal interest rates will remain at zero to 1/4 percent through mid-2015, the Fed said.

Copyright 2012 ABC News Radio

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