Entries in Federal Reserve (106)


Stocks End the Day Flat

Hemera/Thinkstock(NEW YORK) -- Stock prices dropped after a bleak forecast on the economy from the head of the Fed, but recovered a bit to end the session.

While the Dow closed down 13 points and the S&P lost two points, the Nasdaq gained a fraction.

Federal Reserve Chairman Benjamin Bernanke says the economy's not growing as fast as the Central Bank would like to see.  For now, it'll continue its program aimed at keeping interest rates low with the hope of encouraging more borrowing and spending.

Bernanke complains that hiring is still sluggish.  A newly released survey shows that could be the case for a while.  The Business Roundtable says 36 percent of CEOs plan to add workers over the next six months. That's down from 42 percent when the survey was last taken three months ago.

Copyright 2012 ABC News Radio


Federal Reserve Expects Higher Unemployment than Previously Forecast

iStockphoto/Thinkstock(WASHINGTON) -- The Federal Reserve expects unemployment to be higher at the end of the year than it originally forecast back in April.

The Fed now expects unemployment to be between 8 percent and 8.2 percent by the end of the year; previously, the unemployment rate was forecast to be between 7.8 percent and 8 percent.

GDP growth is expected to be slower, as well.  The Fed now forecasts growth of between 1.9 percent and 2.4 percent by the end of the year; previously, its expected growth between 2.4 percent and 2.9 percent

Troubles in Europe are one of the big reasons the Fed cites for its gloomier forecast.

Copyright 2012 ABC News Radio


Fed Keeps Low Interest Rates Through 2014

Chip Somodevilla/Getty Images(WASHINGTON) -- The Federal Reserve will be extending its plan called “Operation Twist,” which was set to expire at the end of the month, until the end of the year.

The Fed’s program sells short-term treasuries and replaces them with purchases of longer-term bonds.

The Fed reiterated that it is hoping to preserve low long-term interest rates through the end of 2014. The currently low interest rates are meant to encourage people and businesses to borrow and spend.

For the average person this is felt most clearly in the mortgage refinancing market.  As mortgage rates plummet to historic lows, people with good credit and enough equity have been refinancing their mortgages at lower rates. This gives them access to more money to spend elsewhere.

This is the least controversial move the Fed could make since it will be selling assets it already has, rather than increasing the size of its balance sheet (printing more money).

The criticism remains though that this Fed policy is helping those who already have money with no help for people with more dire problems. Some would argue that the Fed is doing all it can and the rest is up to the Congress and the president.

The Fed also said it is ready to take further action if needed.

Copyright 2012 ABC News Radio


Stocks Rise on Fed Stimulus Hopes

iStockphoto/Thinkstock(NEW YORK) -- Despite worries about Europe’s debt and financial crisis, U.S. stocks are up for a second straight week.  The big-stock Standard and Poor’s 500 Index and the Nasdaq have made gains four days in a row.

Analysts say since Greece’s election on Sunday attention has turned to the Federal Reserve and its two-day meeting. There’s widespread speculation on Wall Street that the Fed will extend Operation Twist, a program that sells short-term government paper and replaces it with purchases of longer-term bonds.  The aim of this program is to keep benchmark borrowing rates for mortgages and other loans as low as possible.  With signs the U.S. economy may be weakening, the Fed may also launch a new round of quantitative easing.

A third possibility is that Fed policymakers could decide to extend their statement on keeping very low interest rates beyond 2014.

The Dow Jones industrial average rose 112 points to 12,843 at mid-day.

Copyright 2012 ABC News Radio


Family Net Worth Down to Early 1990s Level

Comstock/Thinkstock(WASHINGTON) -- The Federal Reserve released its Survey of Consumer Finance, a grim look at how badly American families suffered during the recent recession.  The report covers the years 2007 to 2010, documenting the rout of the so-called Great Recession.

According to the report:

  • The median family had a net worth of $77,300 in 2010, down from $126,400 in 2007 -- down to levels last seen in 1992.  A drop in home prices is a big reason behind this loss.
  • More families said they were saving as a precautionary measure to make sure they had funds to meet short-term needs. Fewer said they were saving for retirement, education or for a down payment on a home.
  • The losses of income and wealth fell most heavily on the middle income groups. Families with incomes in the bottom and top 20 percent of the population had a smaller percentage of losses than families in the middle 60 percent.
  • The homeownership rate, which had risen noticeably between the 2001 and 2004 surveys, continued to trend downward and was down to 2001 levels.

This survey is conducted every three years.  Full report HERE.

Copyright 2012 ABC News Radio


New Fed Rules Require Banks to Increase Financial Cushion

Chip Somodevilla/Getty Images(WASHINGTON) -- The Federal Reserve proposed new rules Thursday that require banks maintain stronger capital buffers to protect themselves against potential losses.
The rules call for large banks to hold six percent of their assets in capital reserves, compared to the current requirement of four percent. The proposed rules additionally finalize market risk capital requirements through the implementation of Basel 2.5.
“Capital is important to banking organizations and the financial systems because it acts as a financial cushion to absorb firm losses while reducing the incentive for firms to take excessive risks,” Ben Bernanke, chairman of the Federal Reserve, said at a meeting of the Federal Reserve Board of Governors. “With these proposed revisions to our capital rules, banking organization’s capital requirements should better reflect their risk profiles leading to improved resilience in the U.S. banking system in times of stress and thus contributing to the overall health of the U.S. economy.”
Federal Reserve Gov. Daniel Tarullo lauded the proposed rules, saying they "mark an important milestone on the road to a set of strong complimentary capital standards for banking organizations."  Tarullo said that, generally, "pre-crisis capital requirements had been too low" and stressed the importance for banking institutions to have strong capital buffers in place.

“Banks with a strong capital provision can absorb losses from unexpected sources, whether an external shock to the economy, the insolvency of important counter parties or a failure of risk management within the firm. Strong capital buffers help ensure that losses are born by shareholders of the bank not by taxpayers,” Federal Reserve Gov. Daniel Tarullo said.  “Uncertainty about the capital positions of large financial firms was a major factor in the turmoil that beset the country in the fall of 2008.  The subsequent increases in capital at our major banks along with the information provided by the stress tests in 2009 were important factors in stabilizing the system."

Copyright 2012 ABC News Radio


Bernanke Warns Congress on 'Taxmaggedon'

Alex Wong/Getty Images(WASHINGTON) -- The Federal Reserve Board chairman had a stern warning Thursday for Congress: “taxmaggedon” is real, it’s coming and only lawmakers can save the nation from falling off this rapidly approaching “fiscal cliff.”

“What is particularly striking here is that this is all pre-programmed,” Fed Chairman Ben Bernanke said. “If you all go on vacation, it's still going to happen, so it's important to be thinking about that and working with your colleagues to see how you might address that concern at the appropriate time.”

Bernanke, speaking in front of the Joint Economic Committee, was referring to the so-called “taxmaggedon,” the year-end intersection of the expiration of the Bush-era tax cuts, the $1.2 trillion spending cuts due to the sequester, and expiring payroll tax breaks which, if not addressed, could cost American taxpayers $310 billion in tax increases next year.

“The so-called fiscal cliff would, if allowed to occur, pose a significant threat to the recovery,” Bernanke warned. “If no action were taken and the fiscal cliff were to kick in in its full size, I think it would be very likely that the economy would begin to contract, or possibly go even into recession and that unemployment would begin to rise.”

Bernanke said that in the short term if all the measures would occur together they would amount to a withdrawal of spending and increasing in taxation between 3-5 percent of GDP, which would have a “very significant impact” on the near-term recovery.

“What I'm saying is that, in ways that are up to Congress, steps should be taken to mitigate that overall impact. And what combination of tax reductions and spending increases -- that's really up to you,” Bernanke said, “but I urge Congress to come to agreement on that well in advance so as not to push us to the 12th hour. But again, I think that trying to put our fiscal situation on a sustainable basis is perhaps one of the most important things that Congress can be working on.”

The single biggest item in the fiscal cliff, Bernanke said, is the potential expiration of the so-called Bush tax cuts.  If everything else were held constant, he said that expirations alone would have adverse effects on spending and growth in the economy that would be significant.

“I'm not necessarily saying that the right thing to do is to extend those cuts,” he added. “It could be there are other steps you could take that would have a similar impact. But that is the single biggest component of the so-called cliff.

Rep. Sean Duffy, R-Wisc., asked if this means that the Fed chairman would advise that the tax cuts should be extended.

“I'd tell you to try to avoid a situation in which you have a massive cut in spending and increase in taxes all hitting at one moment, as opposed to trying to spread them out over time in some way that will give less -- create less short-term drag on the U.S. economy,” Bernanke responded.

Beyond Congress’ end of the year to-do list to avoid the potentially devastating effects of “taxmageddon,” Bernanke said the Federal Reserve is prepared to take steps to help the U.S. economy, but refused to be pinned down on what additional steps can be taken to spur growth and did not signal imminent action.

As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," Bernanke said.

Copyright 2012 ABC News Radio


Fed Chair Ben Bernanke Says Monetary Policy Is Not a 'Panacea'

Andrew Harrer/Bloomberg via Getty Images(WASHINGTON) -- The U.S. economy is still at risk and the recovery is fragile, but Federal Reserve Chairman Ben Bernanke, testifying on Capitol Hill Thursday, refused to be pinned down on what additional steps can be taken to spur economic growth.

Investors are closely watching Bernanke for signs of additional stimulus, or a third round of quantitative easing, known as QE3, to boost the sagging economy.  Earlier this week, three other Federal Reserve officials said the Fed may need to act to support economic growth.

During his testimony, Bernanke again said the Federal Reserve was prepared to act to boost the economic recovery and stressed the importance of the nation's long-term fiscal stability.

"I don't think we're in a Greek situation," Bernanke said in answer to a question about whether the U.S. economy is headed toward Greece's debt issues.  Greece may have to exit the euro if it's unable to borrow more to finance its debt.

"That being said, I don't think we should be complacent," Bernanke said.

Guy LeBas, chief fixed income strategist with Janney Capital Markets, said interest markets seem to believe Bernanke's comments increase the odds of additional bond purchases as 10-year Treasury note prices increased 8/32nds of a percent as of about 11 a.m. ET.

Stock investors were more "modestly heartened," LeBas said.

LeBas said it seemed clear that the Federal Reserve's monetary policy-making group, the Federal Open Market Committee (FOMC), is leaning towards additional stimulus at their upcoming meetings.

"For months, policymakers have been arguing that, if things get worse, they'll need to add more stimulus," LeBas said.  "Now, judging by the data, things are worse, and it follows that the Fed is likely to attempt to do more to boost economic output and stave off deflation risk."

While economic growth has continued at a "moderate rate so far this year" and "appears to be poised to continue at a moderate pace over coming quarters," Bernanke said in his testimony that some factors that have restrained the recovery persist.  Those include households and businesses more cautious to spend and invest as well as a depressed housing market.

The unemployment rate has fallen about 1 percentage point since last August but increased to 8.2 percent over last month.

"With unemployment still quite high and the outlook for inflation subdued, and in the presence of significant downside risks to the outlook posed by strains in global financial markets, the FOMC has continued to maintain a highly accommodative stance of monetary policy," Bernanke said during his testimony.

The target range for the federal funds rate remains at 0 to 1/4 percent, and the FOMC still anticipates that economic conditions are likely to warrant "exceptionally low levels of the federal funds rate" at least through late 2014, he said in his speech.

Members of Congress pressed Bernanke about whether the Federal Reserve was doing too much to interfere with the economy while others pressed him to act further.

"Monetary policy is not a panacea," Bernanke said during the Q&A, adding that "it would be much better" to have a broad-based policy effort implemented by Congress.

"I would feel much more comfortable if Congress would take some of this burden from us and address these issues," he said.

Copyright 2012 ABC News Radio


Fed's 'Beige Book' Offers Encouraging Economic News

Comstock Images/Thinkstock(WASHINGTON) -- The Federal Reserve's latest Beige Book report finds that the economy is growing at a "moderate pace" and that hiring, contrary to the Labor Department's figures last week, held steady during May.

According to the study by the nation's central bank, "Economic outlooks remain positive, but contacts were slightly more guarded in their optimism."

Most of the job growth occurred in manufacturing, construction, information technology and professional services sectors.  In a further sign the jobs market might be getting better, some areas of the country are having a hard time finding qualified people, especially in the high-tech field.

Still, the Beige Book report contained the ongoing worries about the European debt crisis and Washington lawmakers' inability to compromise on pressing issues including the debt ceiling and extending tax cuts.

Copyright 2012 ABC News Radio


Fed Expects 7.8 to 8% Unemployment at Year’s End

Tim Boyle/Getty Images(WASHINGTON) -- The Federal Reserve now expects a slightly lower unemployment rate at the end of the year than it did in its previous prediction.

In its updated outlook released on Wednesday, the Fed is estimating that unemployment, now at a three-year low of 8.2 percent, will be between 7.8 and 8 percent at the end of the year – rather than the 8.2 to 8.5 percent stated its previous projection.

In his interview with ABC's Diane Sawyer, Ben Bernanke said that he expects unemployment to be at about 8 percent at the end of the year.

January 2009 is the last time the unemployment rate was 7.8 percent, when the U.S. economy was buoyed by several federal stimulus efforts.

The Fed predicts the economy will grow between 2.4 and 2.9 percent in 2012, this also a slightly higher growth rate than the previous forecast.

The Fed still expects inflation to be about 2 percent in coming years.

Weakness in housing and troubles in Europe are two factors the Fed Board and Chairman Bernanke pointed to as threats to the U.S. economy.  That said, the Fed did not indicate any plans for a new stimulus and said that it will keep interest rates low until 2014.

So far no major reaction from the U.S. markets.  All three major indices are up for the day,  NASDAQ is on a bit of a tear, thanks to Apple.

Copyright 2012 ABC News Radio

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