Posts tagged ‘Economy’

Federal Reserve Decides to Cut Stimulus Program

Federal Reserve Decides to Cut Stimulus Program

Ben Bernanke

The Federal Reserve announced Wednesday that it plans to scale back its massive program of bond-buying to stimulate the economy, defying economists’ expectations that it would maintain current policy at least until after the New Year.

The central bank’s Open Market Committee said it would cut the bond-buying program by $10 billion to $75 million, an action known as tapering. Stocks surged after the announcement, and the Dow Jones Industrial Average was 272 points, or about 1.7 percent for the day, late in the afternoon. Though the committee believed the economy and the job market have improved enough to warrant a slight decrease in monetary stimulus, it warned that the unemployment rate “remains elevated.” It also noted that the housing sector has slowed in recent months, and that short-term budget cutting efforts from Congress were slowing the recovery as well.

Outgoing Fed Chairman Ben Bernanke supported the move.

The Fed stressed that it is willing to adjust its purchases in the future either upwards or downwards if economic conditions warrant. In another change, the committee said that it would likely keep short-term interest rates near zero ”well past the time that the unemployment rate declines below 6-1/2 percent,” especially if inflation remains muted.

Speaking to reporters after the announcement, Bernanke indicated it’s likely the Fed will continue to pare back stimulus in $10-billion increments in the coming months. “The steps we take will be data dependent. If we’re making progress on inflation and employment we’ll likely do a measured reduction each meeting,” Bernanke said. The Open Market Committee holds eight meetings each year, so a $10 billion per meeting reduction would end the program sometime in late 2014.

Bernanke also fended off questions about whether the central bank is doing enough to reduce unemployment and maintain inflation at the Fed’s target of two percent. “We’re not doing less” to help the labor market recover, he argued, saying that the reduction in purchases is being paired with a promise to keep short-term interest rates near zero for longer than it had previously promised. “I think we’ve been aggressive to keep the economy growing and we’ve seen progress in the labor market.”

The outgoing Fed chair was also unusually critical of Congress’ fiscal policy, blaming short-term budget cuts for some of the struggles the economy has faced in recent years. “People don’t appreciate how tight fiscal policy has been,” he said. Bernanke pointed out that overall government employment has fallen by hundreds of thousands of jobs since the beginning of the recession.

He did have a few kind words for the latest budget deal however, praising the fact that it traded short-term budget increases with longer-term budget cuts, a strategy that he has pushed for numerous times in the past. Bernanke also praised the fact that a government shutdown was avoided with relative ease this time around. “It’s a good thing [Congress] is working cooperatively and making progress,” he said.



Read more: Federal Reserve: Fed Tapers, Ben Bernanke Supports Cuts In Bond Buying |


E VOTING: The Future of Democracy?

E VOTING: The Future of Democracy? (via NewsLook)

It's election time in the US and we devote this week's show to to discover if the future of democracy is digital. And in Test 24 we check out the new console that promises to "change the way you play". The Wii U hits the shelves in the US and Europe in the coming weeks.

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‘Fiscal cliff’ deal: After rush of relief, debt ceiling clash already looms

'Fiscal cliff' deal: After rush of relief, debt ceiling clash already looms (via The Christian Science Monitor)

Just 10 hours before the New York stock exchange opened on Wednesday, the GOP-controlled House passed the Senate's "fiscal cliff" bill, 257-167, marking the first time that Republicans have, effectively, voted to raise income taxes in 20 years. Markets from Tokyo to Wall Street surged at the news that…

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Fiscal Cliff Trojan

Fiscal Cliff Trojan (via Market Shadows)

There's no cliff, there's no crisis. Excellent talk with Michael Hudson. Fiscal Cliff Trojan By Michael Hudson November 25, 2012 Fiscal Cliff An Artificial Crisis Michael Hudson: Fiscal cliff was manufactured to shift more of the burden of the crisis onto ordinary people. Transcript PAUL JAY, SENIOR…

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Credit union flap may reveal Goldman Sachs is bullying community banks

Credit union flap may reveal Goldman Sachs is bullying community banks (via Raw Story )

When it was announced recently that Goldman Sachs had withdrawn its sponsorship of the small community bank at which Occupy Wall Street had set up an account for its donations, it appeared to be merely a petty act of vindictiveness. According to investigative reporter Greg Palast, however, the motivations…

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Spain Plunders 90% Of Social Security Fund To Buy Its Own Debt

Spain Plunders 90% Of Social Security Fund To Buy Its Own Debt (via Market Shadows)

Courtesy of ZeroHedge. View original post here. Submitted by Tyler Durden. With Spanish 10Y yields hovering at a 'relatively' healthy 5%, having been driven inexorably lower on the promise of ECB assistance at some time in the future, the market has become increasingly unsure of just who it is that…

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Why We’re Ungovernable, Part 6: Here Comes the Debt Ceiling

Why We’re Ungovernable, Part 6: Here Comes the Debt Ceiling (via Market Shadows)

  Source: via Hankering for History on Pinterest   Courtesy of John Rubino. The fiscal cliff was always going to end with a whimper because that was the obvious path of least resistance. In the end, simply avoiding big tax increases and spending cuts while adding a few more…

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Senators hope to end Federal Reserve’s conflicts of interest

Senators hope to end Federal Reserve’s conflicts of interest (via Raw Story )

Three U.S. Senators proposed a bill on Tuesday that would prevent the nation’s most powerful banking executives from simultaneously running the very institutions intended to keep them playing by the rules, with one of the bill’s sponsors saying that JP Morgan’s recent billions in losses are indicative…

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Would tea party accept a Bill Clinton-brokered deal with Obama?

Would tea party accept a Bill Clinton-brokered deal with Obama? (via The Christian Science Monitor)

Following the decisive victory by the man they vowed three-and-a-half years ago to pry out of the White House, the antigovernment tea party movement found itself reassessing its role within a fractured Republican Party that faced broad electoral disappointments on Election Day. President Obama’s…

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Rising gas prices crimp Americans’ spending – Yahoo! News – The Fed doesnt have an answer

Rising gas prices crimp Americans' spending – Yahoo! News.

WASHINGTON (AP) — Higher gas prices are crimping consumer spending and slowing the already-weak U.S. economy. And they could get worse in the coming months.

The Federal Reserve this week took steps to boost economic growth. But those stimulus measures are also pushing oil prices up. If gas prices follow, consumers will have less money to spend elsewhere.

The impact of the Fed’s actions “is likely to weigh on the value of the U.S. dollar and lift commodity prices,” said Joseph Carson, U.S. economist at AllianceBernstein. “We would not be surprised if (it) fueled more inflation in coming months, squeezing the real income of U.S. workers.”

Americans are already feeling pinched by high unemployment, slow wage growth and higher gas prices.

Consumers increased their spending at retail businesses by 0.9 percent in August, the Commerce Department reported Friday. But that was largely because they paid more for gas. Excluding the impact of gas prices and a sizeable increase in auto sales, retail sales rose just 0.1 percent.

Perhaps more telling is where Americans spent less. Consumers cut back on clothing, electronics and at general merchandise outlets — discretionary purchases that typically signal confidence in the economy.

Gas prices have risen more than 50 cents per gallon in the past two months. The national average was $3.87 a gallon on Friday. Most of the increase took place in August, which drove the biggest one-month increase in overall consumer prices in three years, the Labor Department said Friday in a separate report.

“Consumers were not willing to spend much at the mall since they are feeling the pump price pinch,” said Chris Christopher, an economist at IHS Global Insight.

Weaker retail sales will likely weigh on growth in the July-September quarter. Economists at Bank of America Merrill Lynch slashed their third-quarter growth forecast to an annual rate of only 1.1 percent, down from 1.5 percent. That’s not nearly fast enough to spur more hiring, which has languished since February.

The Fed is hoping to kick-start growth with a series of bold steps announced Thursday that could make borrowing cheaper for years.

It plans to spend $40 billion a month to buy mortgage bonds to make home buying more affordable. It also pledged to keep short-term interest rates near zero through at least mid-2015.

And Fed Chairman Ben Bernanke said the Fed will continue its efforts — and intensify them if necessary — until the job market improves “substantially.”

The announcement ignited a two-day stock market rally that sent the Dow Jones industrial average to its highest level since December 2007, the first month of the Great Recession.

But the Fed’s actions also helped move oil prices briefly above $100 a barrel Friday for the first time since May. They fell back slightly, but were still up 74 cents to $99.04 a barrel in mid-afternoon trading.

Carson noted that the Fed’s previous rounds of bond-buying pushed up commodity prices and fueled greater inflation. That weakened the ability of U.S. consumers to spend and likely slowed growth, he said.

He expects the same thing to happen again.

The Fed’s moves can push up oil prices in several ways. The Fed creates new money to pay for its mortgage bond purchases. That increases the amount of dollars in circulation and can lower their value. Oil is priced in dollars, so the price tends to rise when the dollar falls. That’s because it costs more for overseas investors to purchase dollars to buy oil.

Lower interest rates also push investors out of safer assets, such as bonds, and into riskier investments, such as oil, in hopes of a greater return. And if the Fed’s moves accelerate growth, that would increase demand for oil and gas and also raise their prices.

Higher gas prices are eating up a bigger share of Americans’ incomes than in previous years. Spending at the pump accounts for 8.2 percent of the typical family’s household income, according to Fred Rozell of the Oil Price Information Service. That’s just below last year’s 8.3 percent.

Those represent the biggest slice of household income spent on gas since 1981. The typical household spends about $342 per month on gasoline. Before gasoline prices began rising in 2004, households spent less than $200 per month, Rozell said, under 5 percent of median income.

Average gas prices are higher this year than last year. But Americans are using less by driving more fuel-efficient cars and driving less.

Meanwhile, average wages, adjusted for inflation, have been flat for the past year, the Labor Department said Friday. That adds to the squeeze on consumers.

One silver lining is that weakness should eventually push prices back down, economists note. That’s because people cut back on oil and gas consumption when prices rise.

“Unless the economic data rapidly improve, the gains in oil … prices are unlikely to be sustained,” Julian Jessop, an analyst Capital Economics, said.


AP Energy Writer Jonathan Fahey contributed to this report from New York.