Tag Archives: Economics reporting

Fed

Biz press plays game of “Who’s going to run the Fed?”

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Much has been written in the last couple of weeks about Larry Summers becoming the next chairman of the Federal Reserve Board. The press is speculating about a possible horse race between him and Janet Yellen, currently the Fed’s vice chair.

A lot of time has been devoted to trying to determine what monetary policy each of the candidates would follow, and the coverage this week was no different.

Here’s the story from Tuesday’s Wall Street Journal about Summers:

Lawrence Summers, a leading candidate to be the next Federal Reserve chairman, likely wouldn’t beat a rapid retreat from the easy-money policies pursued by Ben Bernanke if he gets the job.

A close reading of Mr. Summers’s columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed’s huge bond-buying programs, known as “quantitative easing,” but that he also has said he sees few harmful side effects stemming from them.

Mr. Summers’s views are of intense interest, both in Washington and on Wall Street, because the next Fed chairman likely will have to manage the exit from extraordinarily easy policies intended to bolster the economy. Investors have become unsettled about any mention of the Fed’s pulling back from the bond buying, and both Democrats and Republicans have been vocal about what they would like to see from the next Fed chief.

Their records show that both Mr. Summers and his apparent chief rival for the Fed nomination, Janet Yellen, currently the central bank’s vice chairwoman, have said the government, in general, should do more to support the current weak economy. Mr. Summers has been an outspoken advocate of more federal spending now, particularly on infrastructure, to boost growth. His views on monetary policy are more nuanced.

Congress is weighing in with their opinions on who the next nominee should be, according to Bloomberg:

The Senate’s second-ranking Democrat said he would “have a lot of questions” if former Treasury Secretary Lawrence Summers is chosen to replace Federal Reserve Chairman Ben S. Bernanke.

Senator Richard Durbin’s comments in an interview at the Capitol reflect anxiety within the Senate that President Barack Obama may nominate Summers. Durbin is among 19 Democratic senators and one independent who signed a July 26 letter to the White House praising Federal Reserve Vice Chairman Janet Yellen and urging Obama to nominate her to lead the central bank.

“If Summers is the nominee, I sure would have a lot of questions to ask him,” Durbin of Illinois said yesterday. “He’s served several administrations, and I’d like to hear his point of view on the role of the Fed in terms of helping the middle class and creating jobs.”

Although the letter didn’t mention other potential candidates, it shows that Yellen is gaining support for the nomination and points up possible difficulties Summers, if nominated, may encounter in winning Senate confirmation.

Last month, Obama said in an interview with Charlie Rose that Bernanke had stayed in the post “longer than he wanted.” The Fed chairman hasn’t indicated whether he would seek or accept a third term. Bernanke’s four-year term ends Jan. 31.

The New York Times did a big piece on July 25 about Yellen and Summers, outlining their differences and reasons why President Obama would select each one:

Janet L. Yellen, the Fed’s vice chairwoman, is one of three female friends, all former or current professors at the University of California, Berkeley, who have broken into the male-dominated business of advising presidents on economic policy. Her career has been intertwined with those of Christina D. Romer, who led Mr. Obama’s Council of Economic Advisers at the beginning of his first term, and Laura D’Andrea Tyson, who held the same job under President Clinton and later served as the director of the White House economic policy committee. But no woman has climbed to the very top of the hierarchy to serve as Fed chairwoman or Treasury secretary.

Ms. Yellen’s chief rival for Mr. Bernanke’s job, Lawrence H. Summers, is a member of a close-knit group of men, protégés of the former Treasury Secretary Robert E. Rubin, who have dominated economic policy-making in both the Clinton and the Obama administrations. Those men, including the former Treasury Secretary Timothy F. Geithner and Gene B. Sperling, the president’s chief economic policy adviser, are said to be quietly pressing Mr. Obama to nominate Mr. Summers.

The choice of a Fed chair is perhaps the single most important economic policy decision that Mr. Obama will make in his second term. Mr. Bernanke’s successor must lead the Fed’s fractious policy-making committee in deciding how much longer and how much harder it should push to stimulate growth and seek to drive down the unemployment rate.

Ms. Yellen’s selection would be a vote for continuity: she is an architect of the Fed’s stimulus campaign and shares with Mr. Bernanke a low-key, collaborative style. Mr. Summers, by contrast, has said that he doubts the effectiveness of some of the Fed’s efforts, and his self-assured leadership style has more in common with past chairmen like Alan Greenspan and Paul A. Volcker.

But the choice also is roiling Washington because it is reviving longstanding and sensitive questions about the insularity of the Obama White House and the dearth of women in its top economic policy positions. Even as three different women have served as secretary of state under various presidents and growing numbers have taken other high-ranking government jobs, there has been little diversity among Mr. Obama’s top economic advisers.

The decision is a big one that will shape the future of our economy. While that might sound a bit hyperbolic, it’s true. The Fed’s actions on quantitative easing will have a lasting impact on investor sentiment, bond prices, and stocks in the coming months. While both front-runners seem to have pros and cons, what’s most important will be stabilizing the nascent economic growth and a smooth transition.

Thomson Reuters logo

Senate to investigate UMich deal with Thomson Reuters

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A senior senator launched an investigation into an arrangement in which the University of Michigan sells early peeks at its consumer-sentiment survey to a select group of investors through Thomson Reuters Corp.

Brody Mullins and John Carreyou of The Wall Street Journal write, “In a letter sent last week, Sen. Charles Grassley (R., Iowa), the top Republican on the Senate Judiciary Committee, asked the university to answer questions about the arrangement and to provide a copy of the contract and any other similar contracts it might have entered into.

“‘My concern is that the [university’s] decision to allow preferential access’ to the report ‘may not be in the public interest,’ Grassley wrote.

“Rick Fitzgerald, a University of Michigan spokesman, said the university had received Grassley’s letter and was reviewing it. Grassley asked the university to respond by July 26.

“Last week, Thomson Reuters agreed to temporarily suspend its practice of sending a two-second advance release of the University of Michigan survey to high-speed traders who pay Thomson Reuters a premium for the service amid an investigation by the New York attorney general into whether the arrangement complies with state laws. The Wall Street Journal highlighted the practice last month.”

Read more here.

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The life of San Diego’s jobs reporter

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Alex Pacheco interviewed Jonathan Horn, who covers the employment beat for the Union-Tribune in San Diego, about his job and his career in journalism.

Jon Hilsenrath

Is Jon Hilsenrath’s Fed coverage influence fading?

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Matthew Boesler of Business Insider takes a look Thursday at how the markets reacted with a yawn to coverage from The Wall Street Journal‘s Jon Hilsenrath, who has been known in the past to influence markets with his Fed coverage.

Boesler writes, “Hilsenrath went on CNBC this afternoon and argues that, in fact, the overall message from the Fed yesterday was ‘hawkish’ (the opposite of dovish), placing emphasis on the minutes of the June FOMC meeting that were released hours before Bernanke spoke. Furthermore, he argued that Bernanke was only saying the same thing he’s already been saying for weeks – that tapering of bond purchases is going to happen, but interest rates will stay pinned at ultra-low levels for a long time.

“When Hilsenrath presented that argument, he got a lot of blowback – perhaps because those who view him as a mouthpiece for Fed policy couldn’t reconcile the argument he was making with the market reaction to Bernanke’s comments.

“‘I don’t know, Jon,’ said CNBC anchor Scott Wapner. ‘I look at markets across the board that are reacting as if the Fed chairman changed the game at 5:00 yesterday afternoon.’

“Markets hardly reacted to Hilsenrath’s comments in the CNBC interview today. Maybe that is a sign that the perception of him as some sort of mouthpiece is fading.

“That may represent a notable shift in perception from just a few weeks ago, when a Hilsenrath blog post published on WSJ.com ahead of the June FOMC meeting – titled ‘Analysis: Fed Likely to Push Back on Market Expectations of Rate Increase’ – caused stocks and bonds to rally.”

Read more here.
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Thomson Reuters to suspend early peeks at consumer confidence data

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Thomson Reuters is expected to announce Monday it will suspend the practice of giving clients an early peek at consumer confidence data, yielding to pressure from the New York attorney general, reports Peter Lattman of the New York Times.

Lattman writes, “In response to the attorney general’s inquiry, Thomson Reuters took the position that its tiered pricing system was legal, said the person briefed on the investigation. But Mr. Schneiderman’s office demanded that Thomson Reuters suspend the selective disclosure of the survey at 9:54:58 to its highest-paying customers.

“After Thomson Reuters resisted making the change, the attorney general’s office threatened to seek a court order to stop it from prereleasing the data, this person said. Rather than wage a court battle, Thomson Reuters capitulated and agreed to temporarily suspend the practice for the duration of the investigation.

“When Thomson Reuters releases the University of Michigan consumer confidence survey this Friday morning, no one will receive the information before 9:55.

“Thomson Reuters has recently had other problems with its release of market-moving data. Last month, the company accidentally released a manufacturing survey from the Institute of Supply Management to a small group of traders milliseconds before others received it. Those traders used computer models to process and trade on the data.”

Read more here.

Euro economy

Europe to keep interest rates low

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While most Americans were busy eating hot dogs and celebrating the birth of our nation, two of Europe’s central banks were sending the clearest signals yet that they will keep interest rates low for the foreseeable future.

Here is the story from the New York Times:

Answering critics who said they were running out of ways to promote growth and lending, the European Central Bank and the Bank of England on Thursday did something neither had done before, committing themselves to keeping interest rates low indefinitely.

The bid to reassure investors brought the two central banks into closer alignment with the Federal Reserve, which, under Chairman Ben S. Bernanke, has adopted a policy of becoming more open about its intentions.

At the same time, they appeared eager to signal that they would not follow the Fed in preparing for a gradual withdrawal of economic stimulus.

Mario Draghi, the president of the European Central Bank, based in Frankurt, said at a news conference that crucial interest rates would “remain at present or lower levels for an extended period of time.” Until Thursday, the bank had steadfastly refused to pin itself down on future policy.

“It’s not six months,” Mr. Draghi said. “It’s not 12 months. It’s an extended period of time.”

Mr. Draghi also said that the central bank was signaling a “downward bias” in interest rate policy, meaning further cuts were possible or even likely.

The Wall Street Journal added this context:

Still, Mr. Draghi stopped short of the data-based road map the Fed gives. The U.S. central bank has said it will keep rates near zero as long as the unemployment rate is above 6.5% and inflation expectations stay anchored.

The ECB’s strategy “is a weak form of forward guidance. But it is guidance nonetheless,” said Holger Schmieding, economist at Berenberg Bank.

Mr. Draghi’s comments didn’t materially alter the outlook for ECB policy, analysts said. Even before Thursday’s meeting many economists expected interest rates to stay where they are well into next year at least. Those expecting a change thought the next move would be a rate cut, not an increase. “A rate cut is there if needed but is not imminent,” Mr. Schmieding said.

The ECB said the economy should gradually improve in the coming months. Euro-zone gross domestic product has contracted for 18 straight months through the first quarter of 2013. Inflation remains subdued.

But a vibrant, job-creating rebound remains elusive. Unemployment is at a record rate of 12.2% in the euro zone, trimming spending on big-ticket items such as automobiles. It is above 25% in Spain and Greece and approaching 18% in Portugal, putting additional strain on public debt. Small businesses in southern Europe pay considerably higher rates on loans than their German counterparts, ECB data showed Thursday.

The Financial Times said it was the first time the ECB had offered forward statements about interest rate policies:

The bank cut its main interest rate to 0.5 per cent in May and its deposit rate stands at 0 per cent. Mr Draghi said the bank kept an open mind on adopting its first negative interest rate in the future.

While the bank still expects a gradual recovery for the eurozone later in the year, Mr Draghi presented recent improvements in business surveys in a more gloomy light than in previous comments, pointing out that the improvement amounted to a slower pace of contraction in the indicators.

Following Mr Carney’s first meeting as chair of the Monetary Policy Committee, the Bank of England chose to issue a rare statement along with its decision to hold rates.

“The Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May report,” the BoE said.

“The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.”

However, the market still expects the first interest rate rise in 2015, rather than the 2016 date forecast in May and June before the Federal Reserve signalled it would rein back its quantitative easing programme

All of the coverage pointed out that the shift was prompted by U.S. Federal Reserve statements that sent the markets into turmoil trying to determine when it was going to end its easy money programs. This looks like an attempt by Europe to reassure investors that the time of low interest rates will continue, especially as unemployment remains high.

And returning some stability to the markets will be a much welcome event for everyone.

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Government cuts hit the private sector

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The New York Times wrote an interesting story Wednesday about the effects of federal spending cuts on the private sector:

Congress’s $85 billion, across-the-board budget cuts may not have brought the economy to a halt, as many once feared. But they are having a negative effect on jobs in the private sector, according to an analysis of the industries whose head count is most dependent on federal funds.

It is no surprise that some of the companies that are hurting are closely associated with military spending, which was specifically targeted to absorb about half of the cuts from the so-called sequester that began March 1. But many of the businesses experiencing the most pain are those that provide a wide range of services, like plumbing and maintenance.

Contractors say they are trying to make do by picking up other projects where they can, but private sector and state and local government demand has also been weak or shrinking in recent years. Many in the facilities support field, a business category that includes janitorial, maintenance, trash disposal, guard and security, mail routing, reception and laundry services, say they are frustrated by the lack of public awareness about how defense budget cuts affect workers who are not performing stereotypical military functions.

And the problems began several years earlier, the story said:

Government cutbacks, not just the sequester and other federal budget cuts but also several years of state and local government layoffs, appear to be an important factor in holding back the economic expansion. “The great puzzle in this recovery is why it’s not quicker, particularly relative to other recoveries,” Mr. Wolfers said. “The sequester is one of the many insults that been hurled at the recovery so far.”

Some government contractors said that their problems started even before the sequester officially began in March, partly because months of debate over Congressional budget cuts made government agencies and military bases wary about how much money they’d have available to spend.

The timing of the story was excellent since the U.S. economy didn’t grow as much as previously thought, according to the Wall Street Journal story:

The U.S. economy expanded at a slower pace than previously estimated in the first quarter as consumer spending and business investment were revised sharply downward, indicating a weaker trajectory for the economy even before growth downshifted in recent months.

The nation’s gross domestic product, the broadest measure of all goods and services produced in the economy, grew at a 1.8% annual rate from January through March, the Commerce Department said Wednesday. That was less than the earlier estimate of a 2.4% growth rate.

The revision was due largely to slower growth in consumption, which eased to a 2.6% gain from the earlier estimate of 3.4%. Consumer spending, which accounts for two-thirds of economic output, was likely hit by a rise in payroll taxes at the start of the year and relatively stagnant incomes, two forces that have pushed the saving rate lower.

Spending on legal services, personal care and health care all were weaker than previously estimated, the Commerce Department said.

The latest figures raised questions about whether growth will be strong enough later in the year for the Federal Reserve to start dialing back its $85-billion-a-month bond buying program. That prospect helped push stocks higher Wednesday and pushed the yield on the 10-year Treasury note lower, easing borrowing costs.

Bloomberg said the payroll tax was to blame for the cut in consumer spending:

Growth in the world’s largest economy was less than originally estimated in the first quarter as an increase in the U.S. payroll tax took a bigger bite out of consumer spending than previously calculated.

Gross domestic product grew at a 1.8 percent annualized rate from January through March, down from a prior reading of 2.4 percent, Commerce Department data showed today in Washington. Household purchases were trimmed to a 2.6 percent advance — still the fastest in two years — from the 3.4 percent gain estimated last month.

Americans cut back on services from vacations to legal advice as the two percentage-point increase in the payroll tax caused incomes to drop by the most in more than four years. At the same time, an improving labor market and rising home prices are underpinning consumer confidence, one reason economists project growth will pick up in the second half of the year.

But it will be interesting to see if the expected growth will actually happen. If small and medium-sized businesses are struggling to replace government contracts and the private sector is cutting spending, then it’s hard to see where that expansion will come from.

Steve Liesman

CNBC’s Liesman on intersection between music, journalism

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CNBC senior economics correspondent Steve Liesman talks about how his love for music plays a role in his journalism.

economy

Conference Board ends early media access to data

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The Conference Board is ending its policy of providing consumer confidence data to business journalists before their release to the public, fearing leaks to traders.

Brody Mullins of The Wall Street Journal writes, “The move is one of the biggest cracks thus far in the traditional way in which private organizations and governmental agencies release market-moving economic data to the public. Previously, the organization had given a 30-minute peek to a small group of journalists who used the head-start to digest the often complicated results and prepare reports.

“The advent of high-speed computerized trading has pushed investors to seek market-moving information a fraction of a second before their competitors. To meet this demand, many media organizations, including Wall Street Journal publisher Dow Jones & Co., have set up systems to feed data directly into traders’ computers, allowing elite investors to trade on the information ahead of the broader public.

“That development, combined with recent instances of suspicious trading ahead of media embargoes, has prompted a broad re-evaluation of how this data is disseminated.”

Read more here.

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CNBC’s Santelli vs. WSJ’s Hilsenrath

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Julia LaRoche of Business Insider writes Wednesday about the brouhaha that erupted between CNBC‘s Rick Santelli and The Wall Street Journal‘s Jon Hilsenrath on the air Wednesday.

LaRoche writes, “Santelli told Hilsenrath that the reason that his stories move the markets is because the world at large believes he’s sourced.

“‘That’s a reality. You can protest all you want.’

“Hilsenrath then gave Santelli a lesson in journalism.

“‘Of course I’m sourced. Every good reporter should be.’

“Hilsenrath is the Washington, D.C-based correspondent  responsible for covering the Fed.  It’s widely believed that he has better access to Fed chairman Ben Bernanke and the rest of the Fed than other reporters out there.  He has even earned the nickname ‘Fed Wire.”‘

“Santelli then argued that Hilsenrath doesn’t hold people accountable.

“‘Part of me holding people accountable is holding people like you accountable, Rick,’ Hilsenrath shot back.

“Hilsenrath got Santelli again at the end of the interview.

“‘Where are all the bad things that you have been saying are going to happen?’

Read more here.