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Entries in Federal Reserve (106)

Tuesday
Dec132011

Fed: No Interest Rate Changes in Last Meeting of Year

Chip Somodevilla/Getty Images(WASHINGTON) -- The final Federal Reserve Open Market Committee meeting of the year just ended, and the nation’s central bankers took no action. The key interest rate -- known as the Fed Funds rate -- remains at 0 to 0.25 percent, as does the Fed’s promise to keep rates at this historically low level through mid-2013.

The post-meeting statement suggests that the Fed sees, “…the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.”

Other key points in their assessment of the economy:

  • There are indicators that the jobs situation is getting better, but unemployment remains too high.
  • American consumers are consistently increasing their spending.
  • Businesses are not increasing their spending as quickly.
  • Housing market continues to be a trouble spot.
  • Prices are increasing at a moderate pace, and long-term inflation expectations are in-check.

They did note that there are, “significant downside risks” and most on Wall Street suggest this is a less-than-subtle hint at the risks posed by Europe’s current debt woes.

Markets were expecting the Fed might announce a new program that would lower an interest rate at the Discount Window -- currently around 0.75 percent. The lack of action on that front pushed stocks into negative territory for the day.

Copyright 2011 ABC News Radio

Monday
Nov282011

Fed Loaned Banks Trillions in Bailout, Bloomberg Reports

Mark Wilson/Getty Images(WASHINGTON) -- In a story that sheds new light on the extent of the country’s financial crisis, Bloomberg Markets magazine reported Monday that the Federal Reserve lent trillions of dollars to beleaguered financial institutions, with $1.2 trillion going out on just one day in 2008.

“The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy,” Bloomberg reported Monday.  “And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.”

Bloomberg Markets said it went over 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions.

“Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse,” Bloomberg reported.

Fed Chairman Ben Bernanke had argued back in 2008 when the crisis hit that revealing borrower details would create a stigma that would have led to more banks collapsing. And the Fed fought to keep the details of the loans, which totaled $7.77 trillion, secret long after.

Copyright 2011 ABC News Radio

Wednesday
Nov022011

Fed: Moderate Pace of Economic Expansion; Downward Revisions

Mark Wilson/Getty Images(WASHINGTON) -- The Federal Reserve’s two-day Open Market Committee ended Wednesday, with the nation’s central banker maintaining a key federal interest rate at the zero to ¼ percent level and continuing its program to extend the maturity of the Fed’s massive portfolio of U.S. treasuries and mortgage securities. The Fed also maintained its promise to keep rates at these levels through mid-2013.

The post-meeting statement shows Federal Reserve Chairman Ben Bernanke and company expect “…a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually...” They also noted there are risks to the U.S. recovery, including what’s happening in global markets -- an allusion to the European/Greek debt crisis.

In a press conference in Washington, the Federal Reserve updated its outlook for the U.S. economy. The new outlook indicates:

GDP

  • 2011: +1.6 – 1.7% (prior outlook was +2.7 – 2.9%)
  • 2012: +2.5 – 2.9% (prior outlook was +3.3 – 3.7%)

Unemployment  

  • 2011: 8.6 – 8.9% (prior outlook was 7.8 – 8.2%)
  • 2012: 8.5 – 8.7% (prior outlook was 7.8 – 8.2%)

Core Inflation

  • 2011: +1.8 - 1.9% (prior outlook was +1.5 – 1.8%)
  • 2012: +1.4 - 2.0% (prior outlook was +1.4 – 2.0%)


Fed Chairman Ben Bernanke acknowledged the pace of economic growth is likely to be "frustratingly slow.”

Copyright 2011 ABC News Radio

Thursday
Oct202011

Federal Reserve Board Rife with Conflict of Interest, GAO Report

iStockphoto/Thinkstock(WASHINGTON) -- The makeup of the Federal Reserve’s board of directors poses a conflict of interest and there is concern that several financial firms and corporations could have reaped monetary benefits from their executives’ close ties to the Fed, according to a new report released Wednesday by the Government Accountability Office.

In one case, the Federal Reserve consulted with General Electric on the creation of a commercial paper funding facility and then provided $16 billion in financing to the company while its chief executive, Jeffrey Immelt, served as a director on the board of the Federal Reserve Bank of New York.  Immelt is now President Obama’s “jobs czar.”

JP Morgan Chase could also have benefited from its chief executive Jamie Dimon’s position on the board of the Federal Reserve Bank of New York, according to the GAO.  The bank received emergency loans from the Federal Reserve at the same time it served as the clearinghouse for the Fed’s emergency lending program.

The Federal Reserve gave JP Morgan Chase an 18-month exemption from risk-based leverage and capital requirements in 2008, the same year that the Fed gave it $29 billion to acquire Bear Stearns, according to the GAO.

Similarly, Lehman Brothers’ chief executive Richard Fuld served on the board of the Federal Reserve Bank of New York at the same time one of its subsidiaries participated in the Fed’s emergency programs.

The Federal Reserve system has come under increased scrutiny in recent years, particularly for the structure of its board of directors.  Executives of banks and companies that are regulated by the Fed, and that receive emergency funding from it, often serve on the board.

“Without more complete documentation of the directors’ roles and responsibilities with regard to the supervision and regulation functions, as well as increased public disclosure on governance practices to enhance accountability and transparency, questions about Reserve Bank governance will remain,” the report states, adding that such affiliations “could create reputational risk for the Reserve Banks.”

The GAO did state that it “did not find evidence that Reserve Bank boards of directors participated directly in making any decisions about authorizing, setting the terms of, or approving a borrower’s participation in the emergency programs.”

Federal Reserve Chairman Ben Bernanke said in a letter to the GAO that the bank will consider ways to amend the bylaws to clearly explain the role of the directors.

Copyright 2011 ABC News Radio

Wednesday
Oct122011

Volcker Rule Unveiled: May Slash Wall Street Bonuses

iStockphoto/Thinkstock(WASHINGTON) -- The government’s biggest financial heavyweights released a long-awaited version of the financial regulation known as the Volcker Rule, which may regulate “high-risk” trading more closely and lead to smaller Wall Street traders’ bonuses.

The Treasury Department, Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Securities Exchange Commission (SEC) on Tuesday released the 200-plus page proposal. The FDIC allows the public to comment about the rule by Jan. 13.

The proposed Volcker rule, named after former Federal Reserve chairman Paul Volcker, is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in July 2010. The rule prohibits two activities among insured depository institutions -- any bank or credit union that is federally insured and accepts deposits, and that includes traditional banks as well as Goldman Sachs, Morgan Stanley, and American Express.

First, it prohibits those financial companies from engaging in “short-term proprietary trading of any security, derivatives, and certain other financial instruments” from an entity’s own funds. Second, it “prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund.”

The rule would require banks to establish an “internal compliance program” and banks with “significant trading operations” to report to federal agencies. The rule is subject to exemptions, which financial watchdogs say are not stringent enough, and banks say are too complex.

The Treasury said the rule details whether a nonbank financial company should be subject to “enhanced supervision” to prevent a future financial crisis. In the recent financial crisis, financial distress at certain nonbank financial companies contributed to, “a broad seizing up of financial markets,” according to the council.

Under the proposed rule, traders’ bonuses could see a cut if they are paid based on revenue from fees, commissions, bid/ask spreads and not the appreciation or profit from their hedged positions.

Frank Keating, president of the American Bankers Association, said he feared the “complexity” of the rule will require bank employees whose sole jobs are to comply with the rule, further inhibiting “U.S. banks’ ability to serve customers and compete internationally.”

Keating said regulators estimate banks will spend nearly 6.6 million hours to implement the rule, or which 1.8 million hours would be required every year.

“That translates into 3,292 years, or more than 3,000 bank employees whose sole job will be complying with this rule,” he said in a statement. “They will be transferred to a role that provides no customer service, generates zero revenue and does nothing for the economy."

Copyright 2011 ABC News Radio´╗┐

Wednesday
Sep282011

Fed Chairman Ben Bernanke: US Can Learn from Emerging Economies

Alex Wong/Getty Images(CLEVELAND) -- Federal Reserve Chairman Ben Bernanke, one of the most-watched figures in the financial world, said the United States could learn a lot from the world’s emerging economies before opening the floor to questions at an event Wednesday evening in Cleveland.

Bernanke said advanced economies like the United States “would do well to re-learn some of the lessons from the experiences of the emerging market economies,” including the “importance of disciplined fiscal policies, the benefits of open trade, the need to encourage private capital formation while undertaking necessary public investments, the high returns to education and to promoting technological advances, and the importance of a regulatory framework that encourages entrepreneurship and innovation while maintaining financial stability.”

During the Q&A session, Bernanke answered questions including from a high school student asking why he became an economist and his thoughts about the future of health care.

Bernanke said the U.S. health care system had unequal access and quality and said the country needed improved productivity such that the U.S. could deliver “more care for less money.”

His remarks came just as the Department of Justice asked the Supreme Court to review a lower court decision that struck down a key provision of the health care law.

Bernanke’s event was his first public appearance since the Federal Reserve announced one week ago it will do a debt swap, selling $400 billion of long-term securities for an equal amount of shorter-term instruments. The Fed’s Open Markets Committee’s new stimulus measure, dubbed Operation Twist, and its gloomy assessment of the economy was received coolly on Wall Street.

The move fueled previous criticism by Republican politicians that Bernanke and the Fed were meddling too much in the U.S. economy. Bernanke did not address the criticism or the Fed’s recent efforts to drive interest rates lower than their already-low levels.

Bernanke’s speech Wednesday before a packed audience at the Cleveland Clinic Ideas for Tomorrow event, entitled Emerging Market Economies on the Sources of Sustained Growth, laid out the status and challenges of emerging economies in Africa, Asia and Latin America.

Bernanke compared economist John Williamson’s views on growth in emerging economies from two decades ago, which were dubbed the Washington Consensus, to today’s prevailing views on the subject.

In his speech, Bernanke said there was “little controversy” in policies aimed at increasing macroeconomic stability.

“Abundant evidence has linked fiscal discipline, low inflation and a stable macroeconomic policy environment to stronger, longer-term growth in both emerging and advanced economies,” he said.

That remark came in contrast to what many Republican leaders in the House and Senate have said in criticism against the Federal Reserve.

Republican leaders sent Bernanke a letter last week urging the Fed not to implement further stimulus, an unusual move because the Federal Reserve is an independent agency.

Last week, the Fed said there are “significant” downside risks to the U.S. economy and repeated that economic conditions warrant “exceptionally low” interest rates through mid-2013, with inflation moderating slightly from earlier in the year. The Fed also expects some pickup in growth in the coming quarters and that the unemployment rate will decline only gradually.

Copyright 2011 ABC News Radio

Thursday
Sep222011

Dow Jones Drops More than 300 Points after Fed's Announcement

Comstock/Thinkstock(NEW YORK) -- Stocks plunged and bond yields fell Thursday morning after the Federal Reserve's announcement of a $400 billion securities swap and a disappointing initial jobless claims report.

The Dow Jones Industrial Average dropped over 350 points to 10,769, or 3.2 percent, after trading began in New York. The S&P 500 and tech-heavy Nasdaq index fell about 3 percent.

The Labor Department announced Thursday that applications for unemployment claims fell 9,000 last week to 423,000, higher than the 420,000 claims economists expected.

Phil Orlando, chief equity strategist with Federated Investors, said 400,000 claims or lower would indicate a healthier economic environment for employment.He said the claims figures and a drop in stocks in European and Asian markets - mostly related to fears of a Greek default - contributed to the stock market's tumble.

Stock trading also responded to the Federal Reserve's announcement that "economic growth remains slow" on Wednesday. The Federal Open Market Committee announced the intent to purchase $400 billion of long-term securities by the end of June 2012 and the sale of an equal amount of short-term securities.

"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased," the committee said in a statement at the conclusion of its two-day meeting.

Orlando said the stock markets had rallied after the Federal Reserve completed its annual meeting in Jackson Hole, Wyoming late August when chairman Ben Bernanke expressed some optimism about the economic recovery. The rally started to falter until about two days ago, in part over rumored action by the Federal Reserve.

Orlando said the Federal Reserve did a good job "telegraphing" its "Operation Twist," which aims to decrease long-term interest rates further than already low levels.

And the Fed's move is already working, at least according to the 10-year Treasury yield. The yield fell below 1.8 percent, the lowest level since the 1940s. But will the low yield help stimulate the economy?

"The point is: how much incremental economic activity are we going to see with the 10 year yield at 1.75 versus 2 percent?" he asked.

"The problem is the reluctance of banks to lend money to credit-worthy small businesses and personal borrowers," Orlando said. "Yes, you have lower interest rates but is that going to increase lending to credit borrowers?"

Copyright 2011 ABC News Radio

Thursday
Sep222011

Fed's Actions Send Global Markets Tumbling

Comstock Images/Thinkstock(NEW YORK) -- Investors didn't quite seem to get the news they were hoping for from the Federal Reserve Wednesday, sending global markets plunging Thursday.

The Fed's Federal Open Market Committee concluded its two-day meeting Wednesday announcing it would shift its bond portfolio, selling $400 billion of short-term securities in exchange for an equal amount of long-term ones, in an effort to stimulate the U.S. economy.  "Operation Twist," as the move is called, will take place by June 2012 and might eventually reduce rates on mortgages or other consumer business loans.

The proposal didn't sit well with Wall Street; the Dow Jones Industrial Average sank 284 points on Wednesday, while the Nasdaq shed 52 and the S&P 500 lost 35.  And the picture doesn't look any better Thursday, with stock futures down before trading kicks off.

Overseas markets also took a hit from the news.  European stocks were trading significantly lower Thursday and those in Asia closed the day down.

Hong Kong’s Hang Seng led the pack, plunging 4.85 percent.  South Korea’s Kospi slid 2.90 percent, China's Shanghai Composite dropped 2.78 percent, Australia’s S&P/ASX 200 lost 2.63 percent, and Japan's Nikkei index shed 2.07 percent.

Copyright 2011 ABC News Radio

Wednesday
Sep212011

Fed Will Try to Drive Interest Rates Even Lower

Jupiterimages/Thinkstock(WASHINGTON) -- In an effort to drive long-term interest rates lower to boost the economy, the Federal Reserve said Wednesday it will sell $400 billion of long-term securities for an equal amount of shorter-term instruments.

The Fed’s Open Markers Committee announced it intends to complete the purchase by the end of June 2012.  The expected new stimulus measure, dubbed Operation Twist, was in line with economists expected.

“This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” according to a Federal Reserve statement.

The Federal Reserve repeated that economic conditions warrant “exceptionally low” interest rates through mid-2013, with inflation moderating slightly from earlier in the year.

The Fed also expects some pickup in growth in the coming quarters and that unemployment rate will decline only gradually.

The committee concluded a two-day meeting Wednesday in Washington, D.C., one of eight scheduled meetings of the year.

After the last meeting, the Federal Reserve released a statement Aug. 9 that it will keep the federal funds rate low, possibly at 0 to 1/4 percent, at least through mid-2013, which the committee reiterated on Wednesday.

Copyright 2011 ABC News Radio

Thursday
Sep152011

Barney Frank Calls for Less Bank Industry Influence at Federal Reserve

United States Senate(WASHINGTON) -- Add Rep. Barney Frank, D-Mass., to a growing list of politicians who don't like how the Federal Reserve operates.

The congressman who helped co-write the Dodd Frank Wall Street Reform and Consumer Protection Act, Thursday proposed a bill that would require the Senate to confirm all members of the Federal Open Market Committee, a group of 12 policymakers who are responsible for setting interest rates.

Currently, the FOMC consists of seven politically appointed Fed governors and five regional Federal Reserve Bank presidents. Some, like Frank, believe that the banking industry holds too much power on the committee.

But others have sharply criticized Frank's proposal and worry that such changes would turn the Fed, whose decisions have a profound impact on the pace of the economy, into a politically motivated body.

"The end result of this bill would be to further politicize the conduct of monetary policy, which is the last thing our economy needs right now," said Spencer Bachus, chairman of the Republican controlled House Financial Services Committee, in a statement.

And many experts agree with Bachus. Interest rates set by the Fed have a direct impact on the amount of money commercial banks can lend, and the fear is that politicians with agendas could attempt to influence monetary policy, especially during an election year.

Many politicians have recently focused their Fed attacks on the central bank's Chairman Ben Bernanke.
Sarah Palin made a comment suggesting that Bernanke “cease and desist,” and Republican presidential hopeful Rick Perry called the chairman's activities "treasonous," recently promising to deny Bernanke another term if elected.

Copyright 2011 ABC News Radio







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