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Entries in Federal Reserve (106)

Tuesday
Mar272012

EXCLUSIVE: Federal Reserve Chief Ben Bernanke on the Economy

ABC/Martin H. Simon(WASHINGTON) -- The U.S. economy is "stronger and more stable" than it was a year ago and the financial stress in Europe is easing, but many challenges remain including adding more jobs for the long-term unemployed and getting the housing market back on track, Federal Reserve Chairman Ben Bernanke said in an ABC News interview Tuesday.

[See the full transcript of Bernanke's exclusive interview with ABC News' Diane Sawyer]

"And so yeah, I'm sleeping a little better," he told World News Anchor Diane Sawyer in an exclusive interview. "But again, I think it's really important not to be complacent. We have a long way to go, a lot of work to do, and we're going to keep doing that."

Bernanke, chairman of the Board of Governors of the Federal Reserve since Feb. 2006, acknowledged that gas prices are a "major problem" but he called them a "moderate risk" in threatening the economic recovery. The national average price for a gallon of regular has risen to $3.92, according to the Energy Department.

Bernanke said higher gas prices may cause inflation to be "a little bit higher" in the next few months and take a bite out of consumer spending, leading to "a hit on growth."

"But at this level we don't think yet that -- particularly given the other good news we've seen in labor markets and so on -- we don't think it's going to be anything that's going to stall the recovery," he said.

He said it's "far too early to declare victory" on a strong economic recovery and the national unemployment rate of 8.3 percent is still "too high."

The head of the U.S. central bank forecasts the unemployment rate will be close to eight percent by year's end, "but that depends very much on how fast the economy grows."

Although the U.S. has seen moderate job growth for the past six months, when Sawyer asked, "What's the one thing that keeps you up at night?" Bernanke pointed to 40 percent of the unemployed who have been out of work for more than six months.

"Those people are obviously facing a lot of hardship," he said.

Bernanke, who was chairman during the financial crisis that began in 2008, described what it felt like to be the only principle policymaker who bridged the administrations of former President George W. Bush and President Barack Obama.

"I was there for the transition, and I was the continuity over that period. And, yes, this has been a very serious crisis followed by a tough recession and recovery," he said. "It's been a long haul certainly."

For 2009, Time Magazine named him the Person of the Year and said he was "the most powerful nerd on the planet."

"I am very proud of my nerd-dom," he said after he was asked if he took offense at the title. "In fact, the world needs more nerds. Nerds, you know, create more jobs and advance science and I hope make good economic policy but that remains to be seen."

With his central role in the U.S. economy, Bernanke has been a target of criticism for the Fed's monetary policies, most recently on the campaign trail. In September, GOP contender Newt Gingrich said he would fire Bernanke if he became president, calling him "the most inflationary, dangerous and power-centered chairman of the Fed in the history of the Fed."

Bernanke said the job of the Federal Reserve "is to do the right thing for the economy irrespective of politics."

"We're not paying any attention to election calendars or political debates," he said. "We're looking at the economy. We want to make the right decision. We want to do it without political pressure, and that's what we're going to do."

Investors have been deconstructing Bernanke's every word, trying to get a sense of whether the Federal Reserve will engage in additional monetary policy stimulus. The central bank's "Operation Twist," which aims to bring interest rates lower through a swap of long-term debt for short-term debt, expires in June. The Federal Reserve previously implemented two rounds of quantitative easing, or bond buying to push long-term interest rates lower, the second of which was introduced in November 2010.

"Well, we don't take any options off the table," he said, when asked if the Federal Reserve could initiate additional economic stimulus. "We don't know what's going to happen in the future, and we have to be prepared to respond to however the economy evolves."

This month Bernanke began delivering a four-part lecture series at the George Washington University School of Business about the Federal Reserve and the financial crisis that emerged in 2008.

"I was a student of the Great Depression as an academic and I think some of the lessons -- the mistakes -- that were made during the Great Depression are very helpful in thinking about our response to the recent crisis," he said. "And I think we avoided some of the most important mistakes."

"Have we hit rock bottom on housing?" Sawyer asked.

Bernanke said the housing market, with home prices near decade lows, remains "a big concern," though there have been a "few signs of progress" including extra building permits and more construction in multi-family housing.

"So there's a bit of a green shoot there if you will," he said. "But you know, we're not really yet in a full-fledged housing recovery. And you know, that will be part of the full recovery of the economy."

Copyright 2012 ABC News Radio

Tuesday
Mar132012

Bank Stress Test: The Best and the Worst

Hemera/Thinkstock(WASHINGTON) -- According to the Federal Reserve, 15 of 19 major U.S. banks would fare well if hit with catastrophic conditions based on a so-called stress test, which determines how banks would fare if hit with a peak unemployment rate of 13 percent, a 50-percent drop in equity prices, and a 21-percent decline in housing prices.

According to the Fed, "The majority of the largest U.S. banks would continue to meet supervisory expectations for capital adequacy despite large projected losses in an extremely adverse hypothetical economic scenario."

How did your bank fare?

The Worst:

Ally Financial

SunTrust Banks

Citigroup

MetLife

The Best:

Bank of New York Mellon

Street State Corp.

American Express

Capital One Financial Corporation

Regions Financial Corporation

BB&T

Fifth Third Bankcorp

Wells Fargo & Company

Bank of America Corporation

The PNC Financials Services Group, Inc

The Goldman Sachs Group

JPMorgan Chase

Morgan Stanley

U.S. Bancorp

Keycorp

The order is based on minimum stressed ratios with all proposed capital actions through Q4 2013.

Copyright 2012 ABC News Radio

Thursday
Mar012012

Bernanke Warns Banking Committee of Chronic Long-Term Unemployment

Alex Wong/Getty Images(WASHINGTON) -- Federal Reserve Chairman Ben Bernanke told senators Thursday that he is concerned that chronic long-term unemployment threatens to reduce the U.S.'s supply of skilled workers.
 
Bernanke says that more than 40 percent of America's unemployed -- 5.5 million people -- have been out of work for more than six months. He says that if the problem persists, more of the long-term unemployed will lose job skills and struggle to regain them.
 
But Chairman Bernanke said he does not expect that the recession will cause lasting damage to the U.S. economy’s ability to grow.
 
Testifying Thursday before the Senate Banking Committee, Bernanke said, "We do not see at this point that the very severe recession has permanently affected the growth potential of the U.S. economy, although we continue to monitor productivity gains and the like."

As he has done before, Bernanke warned Congress about the need to come up with a long-term plan to reduce the deficit. "The United States is on an unsustainable fiscal path looking out over the next couple of decades,” he said. “If we continue along that path, eventually we will face a fiscal and financial crisis that will be very bad for growth and sustainability.”

The Fed chairman told the Senators the economic recovery still has a ways to go. "The recovery is not yet complete, unemployment remains high, the rate of growth is modest,” he said.

As for housing, Bernanke said the market still remains a difficult area. "We are hoping for price stabilization. We think once people have gotten a sense that the housing markets have stabilized, they will be much more willing to buy and the banks will be more willing to lend,” Bernanke said. “But right now there is still uncertainly about where the housing market is going, which I think is troubling."

As the economy gets better, Bernanke said he expects interest rate to go higher. "At some point the economy will strengthen and the Fed may have to raise interest rates,” he told the committee. Eventually, interest rates will rise, he said: "We just don’t know when."

Copyright 2012 ABC News Radio

Wednesday
Feb292012

Ron Paul Spars With Fed Chairman Ben Bernanke

Chip Somodevilla/Getty Images(WASHINGTON) -- Rep. Ron Paul, one of four remaining GOP candidates seeking the nomination for president, returned to Capitol Hill on Wednesday to attend a hearing with one of his chief rivals – the chairman of the Federal Reserve, Ben Bernanke.

Paul, a passionate critic of the Fed who has made its demise a cornerstone of his campaign, was recognized by the chairman of the committee, Rep. Spencer Bachus, as Bernanke’s “thorn in your flesh.”

“I guess over the last 30 or 40 years I have criticized the Fed on occasion,” Paul, R-Texas, admitted as he began his opening remarks. “But the Congress deserves some criticism too. The Federal Reserve is a creature of the Congress.”

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The 12-term Republican said that the financial crisis is a sign of the “end stages of a grand experiment” on currency that derives its value from government regulation or law. Instead, Paul once again made the case for returning to the gold and silver standard.

“They’ve been debating currencies for hundreds if not thousands of years and they always end badly, they always return to market-based money, which is commodity money – gold and silver,” Paul said. “People keep arguing from the other side of this argument that [the Fed] is working, it’s doing well, and yet from my viewpoint and the viewpoint of the free market economists, all it is doing is building a bigger and bigger bubble.”

Paul said that the Federal Reserve has “a responsibility to protect the value of the dollar,” but without a consensus on the “definition of a dollar,” the dollar’s value cannot be sustained.

“Every single day it buys less the next day. To me it’s sort of like…a builder had a yardstick that changed its value every single day. I mean, just think of the kind of building we would have,” he wondered. “We have a debt-based system. The more debt we have, and the more debt the Federal Reserve buys, the more currency they can print, and they monetize this debt. And no wonder we’re in a debt crisis.”

Paul predicted that eventually the market will vindicate his position.

“I am betting that the market is smarter, commodity money is smarter,” he told Bernanke. “Nobody is smart enough to have central economic planning.”

Bernanke was invited to testify at the House Financial Services committee hearing Wednesday to discuss the Federal Reserve’s semiannual monetary policy report, which he presented to Congress.

The Tea Party favorite and Fed chairman enjoyed a lengthy exchange about inflation, which Paul said is aggravated by the Fed when it increases the money supply.

When it came time for questions, Paul asked Bernanke whether the chairman does his own grocery shopping.

“Yes I do,” Bernanke answered.

“Ok, so you’re aware of the prices, but you know this argument that the prices are going up about 2 percent, nobody believes it,” Paul continued. “People on fixed incomes – they’re really hurting, the middle class is really hurting because their inflation rate is very much higher than the government tries to tell them and that’s why they lose trust in government.”

Paul compared the purchasing power of a silver ounce from when Bernanke first took over as chairman of the Fed in 2006 to what it could buy today. “I have a silver ounce here, and this ounce of silver back in 2006 would buy over 4 gallons of gasoline. Today it’ll buy almost 11 gallons of gasoline,” he said. “That’s preservation of value and that’s what the market has always said should be money. Money comes into effect in a natural way, not in a edict, not by fiat, by governments declaring it is money.”

“The record of what you’ve done in the last six years is destroy the value of real money,” he added.

“First of all, good to see you again, Congressman Paul,” Bernanke said, drawing laughter from members of Congress as he was finally able to get a word in. “Nobody prevents you from holding silver or gold if you want to. It’s perfectly legal to do that….and it’s also perfectly fine to hold other currencies – Euros or Yen, or whatever else, so in that respect you can do that.”

Paul wasn’t buying what Bernanke was selling.

“But Mr. Chairman, that’s not money. When you pay taxes to buy a coin or you have a capital gains tax. If you have to settle a lawsuit it’s always settled in depreciating Federal Reserve notes,” Paul countered. “People could vote on it. Maybe they’ll give up on the Federal Reserve note and vote for real money.”

Copyright 2012 ABC News Radio

Wednesday
Jan252012

Fed Extends Low Interest Rates Through 2014

Mark Wilson/Getty Images(WASHINGTON) -- The Federal Reserve announced Wednesday that it expects to keep interest rates near zero percent at least through late 2014. The rate has remained at this record low since the financial crisis took hold in 2008.

In a statement on Wednesday, the Federal Reserve’s monetary policy-making group, the Federal Open Market Committee (FOMC), said it is keeping the target range for the federal funds rate at zero to 1/4 percent and said that economic conditions, "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

The committee said the economy has been, “expanding moderately, notwithstanding some slowing in global growth.”

“While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated,” the committee said in its statement.

Household spending has improved, but growth in business fixed investment has slowed, and the housing sector remains depressed, the committee said.

The weekly average 30-year fixed-rate mortgage (FRM) edged down slightly to 3.88 percent to a new all-time record low marking the seventh consecutive week below 4 percent, Fannie Mae said on Jan. 19.  Last year at this time, the 30-year FRM averaged 4.74 percent. The 15-year fixed-rate mortgage averaged 3.17 percent up from the previous week when it averaged 3.16 percent. A year ago at this time, the 15-year FRM averaged 4.05 percent.

The committee said inflation has been, “subdued in recent months, and longer-term inflation expectations have remained stable.”

The committee finished its two-day meeting on Wednesday, the first meeting of the year. The FOMC, which holds eight regularly scheduled meetings a year, buys and sells securities as its “open market” operations to set monetary policy.

The FOMC consists of twelve members: the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.

Copyright 2012 ABC News Radio

Friday
Jan132012

Fed Clueless to Looming Crisis in '06, Transcripts Show

Federal Reserve Chairman Ben Bernanke. Alex Wong/Getty Images(WASHINGTON) -- Newly released transcripts of Federal Reserve board meetings show that even as disaster loomed for the U.S. economy in 2006 because of inflated housing prices, the board remained largely clueless.

In January, as the Fed met to give a rousing send-off to its retiring long-time chairman, Alan Greenspan, Janet Yellen, then president of the Federal Reserve Bank of San Francisco, struggled to find the right encomium with which to send him on his way.

Unhappily for her in retrospect, she found it:

"It is fitting," intoned Yellen, "for "Chairman Greenspan to leave office with the economy in such solid shape. … The situation you are handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot."

A year later, of course, that spot's sweetness had so soured that the U.S. financial system teetered on the brink of collapse. The transcripts document how slow was the Board to appreciate the significance of events going on around them.

At its June meeting, then president of the Federal Reserve Bank of Atlanta George C. Guynn described to fellow members the lengths to which builders were going in order to cram buyers into houses. As the transcript makes plain, his comments were met with amusement:

"We are getting reports that builders are now making concessions and providing upgrades, such as marble countertops and other extras, and in one case even throwing in a free Mini Cooper to sweeten the deal [laughter]."

The idea that widespread securitization of iffy mortgages might bring down the whole economy or result in the loss of 8 million jobs was given short shrift, though some members, including Susan Bies, expressed misgivings over what she called the mortgage sector's "growing ingenuity."

At the same June meeting, the president of the Federal Reserve Bank in Dallas compared the economy to a BMW Z4 roadster that, though it might have downshifted, was still zipping along nicely: "We don't see as sharp a correction in the second quarter and looking forward. We are, however, concerned about inflation."

That same attitude prevailed even after the housing sector had begun to waiver and housing prices to fall. Timothy Geithner, then president of the Federal Reserve Bank of New York, said at the Board's September meeting, "We just don't see troubling signs yet of collateral damage, and we are not expecting much," adding later, in December, that he thought "The fundamentals of the expansion going forward still look good."

Chairman Ben Bernanke, Greenspan's successor, sounded a somewhat more cautious note, saying he did not have "quite as much confidence as some people around the table that there will be no spillover effect."

Copyright 2012 ABC News Radio

Friday
Jan132012

Fed Officials Didn't See 2006 Housing Market Crash Coming

Mark Wilson/Getty Images(WASHINGTON) -- Top officials at the Federal Reserve had no idea in 2006 that the housing bubble was about to burst, according to newly released transcripts of closed-door Fed meetings.

“I think we are unlikely to see growth being derailed by the housing market,” said Chairman Ben Bernanke at the time.

The hundreds of pages unveiled on Thursday also show that Treasury Secretary Timothy Geithner, who was a Fed official, expressed confidence in September 2006 that “collateral damage” from housing could be avoided.

[CLICK HERE TO READ ALL OF THE TRANSCRIPTS]

Their views echoed the widely held beliefs of most economists and money managers who, at the time, were confident about growth and stock valuations.  Little did they know, apparently, that the housing bubble was just months away from bursting.

Copyright 2012 ABC News Radio

Tuesday
Jan102012

Federal Reserve Transfers $76.9 Billion Profit to Treasury

Adam Gault/Thinkstock(WASHINGTON) -- The Federal Reserve turned $76.9 billion in profits over to the U.S. Treasury Department in 2011, The New York Times reports. Federal law requires the central bank to consign its profits to the Treasury annually.

Despite turning in $2.4 billion less than in 2010, last year's transfer far surpasses those prior to the 2010 record.  In the years leading up to the financial crisis, the Fed's average annual contribution was $23 billion.  After 2007, these contributions grew larger with the average soaring to $54 billion, according to the Times.

The Times reports nearly 97 percent of the central bank's income was made as a result of interest payments on investments, including Treasury and mortgage-backed securities.

Copyright 2012 ABC News Radio

Tuesday
Jan102012

Debt Skyrockets: Americans Borrowed $20.4 Billion in November

iStockphoto/Thinkstock(WASHINGTON) -- Consumer borrowing soared by $20.4 billion in November, the Federal Reserve reported Monday, marking the biggest gain since November 2001 when Americans asked for credit to the tune of $28 billion.

November's surge in borrowing was spurred by more loans to purchase vehicles and a greater willingness to use plastic instead of cash to pay for holiday gifts and other big ticket items. Some economists are concerned consumers leaned increasingly on their credit cards to get them through holiday spending.

The reliance on plastic is apparently linked to the fact Americans are seeing paltry growth in their paychecks, if any at all. After-tax incomes shrank by nearly 2 percent from July to September. As a result, Americans are borrowing more and able to hold onto less of their money: the savings rate fell to the lowest level since the recession began in late 2007.

Copyright 2012 ABC News Radio

Friday
Jan062012

Fed Disagrees with GOP Candidates on Foreclosure Crisis

iStockPhoto/Thinkstock(WASHINGTON) -- Mitt Romney has said the government should let the foreclosure crisis run its course, but that wouldn't help the economy recover, according to a new report by the Federal Reserve that calls on policymakers to take action on the housing front.

“There is scope for policymakers to take action along three dimensions that could ease some of the pressures afflicting the housing market,” the Fed said in a report on the U.S. housing market.

This would involve measures such as, “devising policies that could help facilitate the conversion of foreclosed properties to rental properties -- or supporting a housing finance regime that is less restrictive than today’s, while steering clear of the lax standards that emerged during the last decade.”

The report warns that in the absence of such policies, the downward pressure on the housing market could be prolonged, essentially dragging down the economy.

The housing market remains dismal three years after it crashed. Currently, 12 million mortgages worth $700 billion are underwater.  Since its peak in 2006, housing prices on average have fallen 33 percent, resulting in a loss of $7 trillion to U.S. households.

Yet, there has been little talk of the housing market or how to resolve the ongoing crisis on the campaign trail.

Romney has presented the most talked-about solution thus far: let them “hit the bottom.”

In an interview with the Las Vegas Review Journal in October, the front-runner suggested to not, “try and stop the foreclosure process. Let it run its course and hit the bottom.  Allow investors to buy homes, put renters in them, fix the homes up, and let it turn around and come back up.”

At a debate in Nevada later, he added: “The idea of the federal government running around and saying, 'Hey, we’re going to give you some money for trading in your old car, or we’re going to give you a few thousand bucks for buying a new house, or we’re going to keep banks from foreclosing if you can’t make your payments,' these kind of actions on the part of government haven’t worked.”

Ron Paul advocates a similar hands-off approach.

One point the Federal Reserve makes that may ring better with conservatives: Let Fannie Mae and Freddie Mac take some losses for the betterment of taxpayers.

“Because of their outsized market presence, the GSEs’ [government-sponsored enterprises] actions affect not only their own portfolios, but also the housing market overall,” the report stated. “Some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”

Copyright 2012 ABC News Radio







ABC News Radio