Tag Archives: Economics reporting
by Liz Hester
The Federal Reserve Board announced Wednesday its long-awaited decision to begin the pull back from its bond-buying program.
While the speculation about when this would happen and how much they’d pull back has been written about much of the second half of the year, the move is still significant for the markets since it means the Fed believes the economy is finally on the right track.
MJ Lee covered the story for Politico with a straightforward lead:
The Federal Reserve announced on Wednesday that it will begin pulling back on its efforts to boost economic growth through monthly bond purchases, arguing the economy is gaining enough strength for the central bank to begin its retreat.
Financial markets have closely watched and speculated on when the Fed would begin scaling back its monthly bond buys, the central bank’s signature response to the recession brought on by the financial crisis, and the issue has also stirred political debate with Republicans charging the Fed is intervening too much in financial markets and the economy.
On Wednesday, the Fed said its policy setting committee has decided to “modestly” scale back the pace of its monthly asset purchases by $10 billion and will now buy $75 billion worth of Treasury and mortgage-backed bonds each month starting in January.
The Los Angeles Times story by Andrew Tangel started out with the end-of-day rally in the stock markets set off by the news:
Stocks rallied nearly 2% after the Federal Reserve announced it would begin scaling back its stimulus program early next year.
The Dow Jones industrial average added 292.71, gaining 1.8% to 16,167.97 at the closing bell Wednesday. The broader Standard & Poor’s 500 index rose 29.65 points, or 1.7%, to 1,810.65.
The late-day rally pushed the Dow and S&P 500 to new all-time closing highs, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
The technology-focused Nasdaq composite rose 46.38 points, or 1.2%, to 4,070.06.
Wall Street has been obsessed over how long the Fed would continue its easy-money policies that have helped boost this year’s stock rally.
“The market sees it as the right thing to do,” said J.J. Kinahan, chief strategist at TD Ameritrade. “It views it as a vote of confidence that the [economy] is as healthy as the numbers have been portraying it.”
While it might be a vote of confidence, the Wall Street Journal’s story by Victoria McGrath and Jon Hilsenrath pointed out at the top that the Fed will likely continue its policy changes gradually:
The Fed also sought to enhance its commitment to keep short-term interest rates low for a long time after the bond-buying program ends. Fed officials repeated that they won’t raise their benchmark federal funds rate from near zero until unemployment drops at least to 6.5%, as long as inflation remains in check. They also added language to the statement saying, “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time” that the jobless rate dips below the 6.5% threshold.
U.S. stock prices fell as the news emerged, but rebounded almost immediately. The Dow Jones Industrial Average and the S&P 500 index both ended the day at record closing levels. Prices on Treasurys slipped, pushing the yield on the 10-year note up to 2.885%
Fed Chairman Ben Bernanke said in his press conference after the central bank’s two-day meeting that future steps on the bond-buying program will depend on the economic data. He said if the economy continues to improve as expected, the Fed could make “a measured reduction” at each of its eight meetings next year. But if the economy disappoints, the Fed could “skip a meeting or two,” and if it picks up more than expected it could scale back the bond buys “a bit faster,” he said.
The New York Times story by Binyamin Appelbaum added the context that by many measures the economy isn’t that robust and could be a while before the labor market returns to pre-crisis levels:
The Fed is struggling to calibrate its stimulus campaign in an environment of steady but mediocre growth. The unemployment rate has declined over the last year, reaching 7 percent in November. That is still a high rate by historical standards, and other measures of the labor market look even worse. Wages are barely rising, and the share of adults with jobs has not climbed since the recession.
A variety of indicators suggest that the American economy may be growing more quickly than analysts had predicted during the final quarter of the year, and Fed officials expect somewhat faster growth in the coming year. But the persistence of low inflation indicates that the economy still is operating well below its capacity.
By one measure, prices increased by only 0.7 percent during the 12 months that ended in October. “We don’t have a good story about why this is,” James B. Bullard, president of the Federal Reserve Bank of St. Louis, said in November. “You would have expected to see more inflation pressure by this point. We haven’t seen it.”
The Fed over the last year has purchased more than $1 trillion in Treasury and mortgage-backed securities in an effort to encourage job creation.
That’s a huge amount of stimulus by any measure. And the Fed has a hard line to walk given that any announcement seems to cause volatility in the markets. Now that investors know the plan, it’s likely to cause fewer issues moving forward. But only time will tell if the economic recovery will continue, giving the Fed some room to pull back further.
by Liz Hester
Stanley Fischer is the choice for the vice chairman role at the Federal Reserve Board, bringing an outsider to the No. 2 spot. The initial stories about his nomination were definitely positive with few organizations citing anything wrong with his record.
Bloomberg had this to say about the choice:
The former Bank of Israel governor, though a newcomer to the Fed, also brings continuity and strong academic credentials: as a professor of economics at Massachusetts Institute of Technology, he taught Fed Chairman Ben S. Bernanke, whose term ends in January, and European Central Bank chief Mario Draghi.
Fischer, 70, is President Barack Obama’s top choice to succeed Fed Vice Chairman Janet Yellen, who has been nominated to replace Bernanke, according to people familiar with the selection process. Obama has already offered the job to Fischer, who accepted it, said one of the people. The decision was made jointly by the president and Yellen, who is awaiting Senate confirmation as Fed chairman, the person said.
“It’s almost like a central bank hall of fame,” said Robert Hall, professor of economics at Stanford University, and chairman of the National Bureau of Economic Research’s committee that decides when expansions begin and end. “They have a huge track record as central bankers.”
The New York Times talked about Fischer’s ties to Wall Street and how they could be a liability as well as helpful in his new job:
Mr. Fischer is at once a surprising choice and a popular pick among economists and investors. He is a highly regarded economist with significant policy-making experience, yet many had considered his selection improbable because of his recent service in a foreign government. News about Mr. Fischer’s possible nomination was reported on Israeli television.
That experience could become a concern if he is nominated, as could his experience at Citigroup, where he was vice chairman between 2002 and 2005. The company’s expansion during that period eventually ended in a federal bailout.
As the Fed’s vice chairman, Mr. Fischer would most likely exert a moderating influence on Ms. Yellen, echoing, in a way, her intellectual partnership with Mr. Bernanke. Ms. Yellen is a forceful advocate for the Fed’s efforts to stimulate the economy and reduce unemployment. Mr. Fischer has been generally supportive of those efforts, but has raised questions about the particulars.
He offered measured support at a conference last month for the Fed’s bond-buying campaign, describing it as “dangerous” but “necessary.” At the same time, he has expressed greater skepticism about the companion effort to hold down borrowing costs by declaring that short-term interest rates will remain low, describing such forward guidance as potentially confusing.
“You can’t expect the Fed to spell out what it’s going to do. Why? Because it doesn’t know,” he said at a conference in September, according to The Wall Street Journal. “It’s a mistake to try and get too precise.”
Mr. Fischer’s experience on Wall Street, while potentially a political liability, could prove valuable for the Fed, which lacks officials with experience in the financial markets that it must manage and regulate.
The Washington Post story listed four reasons that Fischer was a good choice for the job. Below is one:
A crisis-management veteran. Fischer has faced trial by fire, most dramatically as the deputy managing director at the IMF from 1994 to 2001. He was on the front lines dealing with of a series of emerging market crises, including in Mexico, East Asia and Russia.
In other words, if there were to be a crisis in one or more of the emerging powers like China, India or Brazil, it would be the sort of thing that Fischer has spent his career preparing for. That is doubly important right now, as money has been gushing out of emerging economies in the past few months, driving their currencies down and their borrowing costs up. That has become all the more clear in the past few of months, as the threat of a wind-down of the Fed’s easy-money policies has prompted volatility in emerging markets and shown how unstable the world financial system can be.
The Wall Street Journal story quoted Bernanke praising Fischer and then another former student with a differing opinion:
“Stan was my teacher in graduate school, and he has been both a role model and a frequent adviser ever since,” Mr. Bernanke said at a conference at the IMF honoring Mr. Fischer last month. “An expert on financial crises, Stan has written prolifically on the subject and has also served on the front lines.”
Not all Mr. Fischer’s former students were as effusive. One of them, Simon Johnson, a former chief economist at the IMF, raised questions about Mr. Fischer’s stance on financial regulation. “I don’t know what Fischer stands for on regulation. It’s a black box to me,” said Mr. Johnson, who has been critical about U.S. bank bailouts since the financial crisis. “What’s the rationale for this candidacy? I don’t get it.”
Mr. Fischer is generally seen among economists as a pragmatist who has been supportive of the Fed’s efforts to boost the economy after the crisis.
The vice chair role will be critical in upcoming policy decisions, especially around when to start pulling back from the Fed’s bond buying program. While Fischer may have tied to Wall Street and there may be questions surrounding his stance on regulation, he definitely has a variety of experience and deep financial knowledge.
by Liz Hester
After Friday’s jobs gains, the speculation about the Federal Reserve Board ending the $85 billion a month bond-buying program picked up. Coverage began Friday and continued through the weekend about one of the economy’s most important stimulus plans.
Here’s the story from the Wall Street Journal:
Fed Chairman Ben Bernanke will have to build consensus among officials about how soon to pull back on a program that has been the center of market attention for months and whose effectiveness isn’t wholly clear. Many are getting more comfortable with starting a delicate process of winding the program down, though disagreements about timing and strategy could emerge, according to public comments and interviews with officials.
The Fed’s next policy meeting is Dec. 17-18 and a pullback, or tapering, is on the table, though some might want to wait until January or even later to see signs the recent strength in economic growth and hiring will be sustained. On Tuesday, officials go into a “blackout” period in which they stop speaking publicly and begin behind-the-scenes negotiations about what to do at the policy gathering.
One important consideration: Are investors prepared for a move? Talk of pulling back earlier this year jarred stock and credit markets. On Friday they seemed to take the prospect of a pullback in stride.
The Dow Jones Industrial Average leapt 198.69 points, or 1.3%, to 16020.20, the largest rise in seven weeks. Friday’s gain snapped a five-day losing streak and put stocks within striking distance of all-time highs. The yield on the 10-year Treasury note barely rose, another sign that financial markets weren’t rattled.
Bloomberg reported Saturday that after the jobs report the number of economists predicting the Fed would decrease purchases increased, indicating that many believe the economy is recovering:
The FOMC has pledged to keep buying bonds until the “outlook for the labor market has improved substantially.” The central bank’s so-called quantitative easing has pushed the Fed’s balance sheet close to $4 trillion this year with purchases of Treasury and mortgage-backed securities.
The payroll and unemployment numbers “are impressive in terms of a stronger economy and the need to exit QE,” Pacific Investment Management Co.’s Bill Gross said yesterday on Bloomberg Radio. He said the odds of a December taper are “at least 50-50 now.”
Other reports yesterday showed an improving labor market is boosting consumer confidence along with the spending that accounts for 70 percent of gross domestic product.
Household purchases climbed 0.3 percent in October after a 0.2 percent increase the prior month, according to Commerce Department figures. The median estimate in a Bloomberg survey of 73 economists called for a 0.2 percent rise.
The Thomson Reuters/University of Michigan preliminary December consumer sentiment index rose to 82.5, the highest in five months, from 75.1 in November. Economists forecast an increase to 76, according to the median estimate in a Bloomberg survey.
The Labor Department’s household survey showed more people were entering the labor force. The so-called participation rate rose to 63 percent in November, the first gain since June. A month earlier it fell to 62.8 percent, the lowest level since March 1978.
Reuters covered comments made by the head of the Federal Reserve Bank of Chicago saying tapering was on the table, but he would like to see more positive moves in the economy:
A top Federal Reserve official, who has been one of the most ardent supporters of the U.S. central bank’s bond-buying stimulus program, said he was open to curtailing the purchases this month, although he would prefer to wait.
The comments from Charles Evans, the president of the Federal Reserve Bank of Chicago, suggest a strong report on November jobs growth on Friday has brought the Fed closer to reducing its third round of quantitative easing, known as QE3.
U.S. nonfarm payrolls expanded by a greater-than-expected 203,000 jobs in November, with the unemployment rate dropping to a five-year low of 7 percent.
“I’ll be open-minded,” Evans said in an interview with Reuters Insider, when asked whether he would support trimming the Fed’s stimulus at its policy meeting on December 17-18.
“Everything else (being) equal, I would like to see a couple of months of good numbers. But this was improvement.”
The jobs data cheered Wall Street. The Standard & Poor’s 500 Index broke a five-day losing streak and ended Friday’s session with a gain of 1.12 percent gain. U.S. government bond prices were little changed.
MarketWatch took the contrary position, writing about the reasons the Fed may wait to stop tapering:
The Federal Reserve is likely to hold off on scaling back its bond-buying program in December, using the meeting to prepare the markets for a move early next year, economists said Friday in the wake of the strong November unemployment report.
“The odds are that they basically almost pre-announce at the December meeting and say if numbers continue to be strong a tapering will start very soon,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. Tapering refers to scaling back bond purchases.
John Lonski, chief capital markets economist at Moody’s Analytics, agreed. “At a minimum, they will strongly hint that a taper will be announced at the January 2014 meeting,” Lonski said.
There will be some internal pressure at the U.S. central bank to move in December, noted Joel Naroff, president of Naroff Economic Advisors in Philadelphia. “The pro-tapering crew [at the Fed] will start yelling at the top of their lungs to start yesterday,” he said in a note to clients.
“But I suspect the [Federal Open Market Committee] will only indicate that if the solid data continue, the conditions will be in place to start taking the pedal off the metal,” Naroff added.
Naroff said he still expects the Fed to start to taper in March, “though a robust December report could provide the cover needed to start in January.”
While Fed officials go into lock-down before their meeting, investors will just have to wait to see what they decide and how others will react. It is likely going to be the most important decision they’ll make this year.
by Liz Hester
The U.S. gross domestic product grew more than expected in the third quarter. But some of the coverage wasn’t positive as reporters actually dug into the causes for the increase.
Here’s the beginning of the Wall Street Journal story:
The U.S. economy expanded significantly faster than initially estimated in the third quarter as businesses fattened their inventories, a factor that is likely to weigh on growth in the year’s final quarter.
Gross domestic product, the broadest measure of goods and services produced in the economy, grew at a seasonally adjusted annual rate of 3.6% from July through September, the Commerce Department said Thursday. The measure was revised up from an earlier 2.8% estimate and marks the strongest growth pace since the first quarter of 2012.
The upgrade was nearly entirely the result of businesses boosting their stockpiles. The change in private inventories, as measured in dollars, was the largest in 15 years after adjusting for inflation.
As a result, inventories are likely to build more slowly or decline in the current quarter, slowing overall economic growth. The forecasting firm Macroeconomic Advisers expects the economy to advance at a 1.4% rate in the fourth quarter. Other economists say the pace could fall below 1%.
“The meat and potatoes of the economy are still trending pretty low,” said Scott Brown, chief economist at Raymond James & Associates.
The New York Times added the caveat that the growth was based on less-than-desirable factors:
Inventory changes are notoriously volatile, so while the healthier signals would be welcomed by economists, inventory gains can essentially pull growth forward into the third quarter, causing fourth-quarter gains to slacken.
Indeed, Wall Street was already estimating that the fourth quarter of 2013 would be much weaker than the third quarter, with growth estimated to run at just below 2 percent, according to Bloomberg News.
The anemic pace of fourth-quarter growth also stems from the fallout of the government shutdown in October, as well as the continuing fiscal drag from spending cuts and tax hikes imposed by Congress earlier in 2013.
Still, if the better data on growth from the Commerce Department on Thursday is followed by more robust numbers Friday for the nation’s November job creation and unemployment, it increases the odds the Federal Reserve will soon ease back on stimulus efforts. The jobs data is scheduled to be released by the Labor Department at 8:30 a.m. Friday.
The Reuters story did a good job of breaking down the numbers and explaining why they weren’t as robust as first seemed:
Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011. The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 percent rate rather than the 2.0 percent pace estimated last month.
A gauge of domestic demand rose at just a 1.8 percent rate. The strong inventory accumulation in the face of a slowdown in domestic demand means businesses will need to draw down on stocks, which will weigh on GDP growth this quarter.
Fourth quarter growth estimates are already on the low side, with a 16-day shutdown of the government in October expected to shave off as much as half a percentage point from GDP.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down to a 1.4 percent rate, the lowest since the fourth quarter of 2009. Spending had previously been estimated to have increased at 1.5 percent pace.
The Washington Post blog’s headline said it most clearly – ”put away the champagne”:
But there’s a bigger story here than the weird blips to GDP being driven by inventories. It’s that we keep getting mixed signals on how robust the U.S. economy really is as 2014 approaches. Some recent data have been good. The Institute for Supply Management survey of manufacturers for November indicated the strongest growth in output since the spring of 2011. The number of people filing new claims for jobless benefits has been hitting rock-bottom levels (including only 298,000 last week, the Labor Department said Thursday, though that was dragged downward by seasonal adjustment quirks tied to the late Thanksgiving).
At the same time, overall growth has remained tame once inventory effects are taken out, and we’ve seen enough false starts and moments of unjustified optimism during this long, slow recovery that policymakers, particularly those at the Federal Reserve, may want more overwhelming evidence that things are picking up before taking it for granted that above-trend growth has finally arrived.
Which brings us to the November jobs report, due out Friday morning at 8:30. Yes, it’s worth mentioning all the usual caveats about not putting too much faith in any one data point, the large margin of error in the survey, the revisions that could ultimately make the initial reading meaningless.
All that’s true, but you go to battle (or in this case, set monetary policy) based on the data you have, not on the data you might wish to have. So the Friday jobs numbers, which analysts expect will show 185,000 net jobs added in November, are the single most important data point in determining whether the Fed begins slowing its monthly bond purchases at its Dec. 17-18 policy meeting. And for the rest of us, it will be the best indicator of whether this recovery is starting to take off, or whether the long slog continues apace.
Despite the numbers, it looks like the economy isn’t doing as well as it might appear on the surface. The numbers don’t lie.
by Chris Roush
Ben Casselman, the lead economics reporter at The Wall Street Journal, is leaving the business newspaper to join Nate Silver’s FiveThirtyEight.com as chief economics writer.
At the Journal, Casselman covered energy, real estate and most recently served as a lead economics reporter. Casselman was part of a team of Journal reporters whose work on the Deepwater Horizon oil spill, including statistical analysis on oil-rig accidents, won a Gerald Loeb Award and was a finalist for the 2011 Pulitzer Prize in national reporting.
“Ben’s exceptional career at The Wall Street Journal demonstrates that dogged and tenacious reporting is not the enemy of data-driven journalism,” said Silver in a statement. “By contrast, they have much the same method. It’s a matter of asking great questions, and being willing to dig under the surface of the problem to provide clarity to a wider audience amid the massive amount of data and information in the world today.”
At FiveThirtyEight, Casselman will perform original analysis of publicly available economic data, such as monthly reports on inflation and unemployment, to uncover trends not currently explored in mainstream coverage. Casselman will contribute a mix of news analysis, in-depth features and enterprise-level projects.
“We think there’s a huge need in the market for this,” said Silver. “When the jobs report comes out every month, coverage focuses either on what it means for investors or how it might affect an election campaign. There’s not enough emphasis on what it means for everyday American families and businesses. Nor is there enough appreciation for how noisy the numbers can be, and how any data point needs to be placed into a broader economic context.”
by Chris Roush
Wall Street Journal economics editor David Wessel, who resigned Wednesday to join the Brookings Institution, sent out the following message to his colleagues:
In 1983, after several other Wall Street Journal bureau chiefs and editors had turned me away, June Kronholz hired me as a reporter in the Boston bureau. Thirty years is a long time. When I joined the Journal we relied on fax machines, typewriters and teletypes . Thirty years is longer than I’ve been married and longer than my kids have been alive.
It’s time for me to try something else — not because I don’t enjoy coming to work every day and not because of any of the changes at the Journal, but because I’m 59 years old and I’d like to see what it’s like to do something different. After the start of the year, I’ll be the director of the new non-partisan Hutchins Center on Fiscal and Monetary Policy at Brookings Institution.
I’m very glad that Gerry Baker has found a way for me to continue to contribute regularly to WSJ.com; more details to follow.
I have had the good fortune to be mentored by Norm Pearlstine, Paul Steiger, Al Hunt and Alan Murray. I have had the joy of working closely with Jerry Seib, Matthew Rose, Bob Davis, Greg Ip, Jon Hilsenrath and dozens of other world-class journalists. I have seen Robert Thomson, Gerry Baker, Rebecca Blumenstein, Matt Murray and Almar Latour equip the Journal to prosper in the global and digital arena while other newspapers atrophy. I am grateful to all of them for all they’ve taught me, for all the good times, for all the great stories and for nurturing the nation’s best journalistic franchise.
I am as proud to call myself as a Wall Street Journal reporter today as I was in 1983, and I know I’ll miss being in the midst of the news flow. But I also know that it’s time for me to make room for a younger generation of gifted, hard-working, tenacious reporters covering the economy and economic policy around the world.
I will continue to be a close and loyal Journal reader. Although I won’t be sending so many early-morning emails, I know myself well enough to say that there’ll still be some.
With great admiration and deep thanks.
by Chris Roush
David Wessel, the economics editor for The Wall Street Journal, has resigned to accept a job with the Brookings Institution, a think tank based in Washington.
Wessel will be a senior fellow and oversee the Hutchins Center on Fiscal and Monetary Policy. He will still contribute to the Journal.
In a note to the Journal staff, managing editor Gerard Baker wrote, “His contributions to the Journal’s economics coverage have been peerless. I am deeply grateful to him for all he has done over 30 years in journalism, I wish him all the very best in his new venture and I look forward to enjoying the fruits of future collaboration between us.”
Wessel currently writes the Capital column, a weekly look at the economy and forces shaping living standards around the world. He also appears frequently on National Public Radio’s “Morning Edition” and on WETA’s “Washington Week.”
“I’ve been a daily journalist since the day after I graduated from college in 1975, and I’m finishing my 30th year at The Wall Street Journal,” said Wessel in a statement. “It’s time to try something new.”
He is the author, most recently, of “Red Ink: Inside the High Stakes Politics of the Federal Budget” (2012). He wrote the New York Times best-seller “In Fed We Trust: Ben Bernanke’s War on the Great Panic” (2009) and, with Bob Davis, “Prosperity” (1998), a look at the American middle class.
Previously, Wessel was deputy bureau chief of The Wall Street Journal’s Washington bureau. He joined the Journal in 1984 in Boston, and moved to Washington in 1987. In 1999 and 2000, he served as the newspaper’s Berlin bureau chief.
He has worked for the Boston Globe, the Hartford (Conn.) Courant and Middletown (Conn.) Press. A product of the New Haven, Conn, public schools, he graduated from Haverford College in 1975 and was a Knight Bagehot Fellow in Business & Economics Journalism at Columbia University in 1980-81. In 2009, he was awarded an honorary doctorate in humane letters by Eureka College.
Wessel has shared two Pulitzer Prizes, one for Boston Globe stories in 1983 on the persistence of racism in Boston and the other for stories in The Wall Street Journal in 2002 on corporate wrong-doing.
by Chris Roush
The Reuters financial news service has launched a blog called Equals that focuses on gender equality and the role women play in the economy.
In a post on the blog, journalist Shane Ferro writes:
We’ll be tackling subjects like education, workplace performance, competitiveness, pay, and leadership. The topics will encompass virtually any subject that relates to gender differences in economics, finance, and management. The blog will lean heavily on data and new research, as well as the smart voices around the web already contributing to the discussion.
In an email, Ferro added:
Quite simply, there is a lot out there on this subject that deserves more coverage. I am particularly interested in the huge trove of academic, government, and private research dedicated to the gender gaps in education, pay, employment, and management. However, it falls between quite a few different coverage areas, so sometimes it gets its due and other times it slips through the cracks. Personally there was a lot that I wanted to pitch for our current economics and business blog, Counterparties, but I felt that it was just tangential enough that it didn’t fit. So, we decided to create a whole new blog.
I’ve gotten a lot of positive feedback since we launched yesterday, which makes me even more excited to move forward. I’ll be doing much of the posting at the beginning, but expect to see a variety of bylines as it gets up and running.
by Liz Hester
The Federal Reserve Board is considering pulling back on its bond purchases, but it won’t be easy to wean the market from the stimulus it now considers nearly essential.
The release of the minutes from the October meeting sparked a round of media coverage. The Wall Street Journal wrote this story:
Federal Reserve officials, mindful of a still-fragile economy, are laboring to devise a strategy to avoid another round of market turmoil when they pull back on one of their signature easy-money programs in the months ahead.
Central-bank officials have been debating for months when to start paring the $85 billion-a-month bond-purchase program. They were surprised during the summer when their discussions and public pronouncements on the potential timing rocked markets, pushing interest rates higher and stock prices down.
Minutes of the Oct. 29-30 policy meeting, released Wednesday, showed officials continued to look toward ending the bond-buying program “in coming months.” But they spent hours game-planning how to handle unexpected developments and tailoring a message to the public to soften the impact of the program’s end.
Investors responded Wednesday with new disappointment. The Dow Jones Industrial Average fell 66.21 points, or 0.4%, to 15900.82. The Dow had crossed the 16000 mark during intraday trading for the second time this week, but turned negative following the release of minutes from the Fed’s Oct. 29-30 policy meeting. Bond yields rose to a two-month high, with the 10-year Treasury notes climbing 0.083 percentage point to 2.795%.
The Fed’s next policy meeting is Dec. 17-18. The decision on whether to act then on cutting back on bond purchases will depend largely on the strength or weakness of economic data over the next few weeks.
The New York Times pointed out the move has been in the works for some time, but the Fed is considering making it policies and factors for making a decision better known:
The outlines of that shift have been clear for some time. The Fed intends to reduce and then suspend its monthly purchases of Treasury and mortgage-backed securities. At the same time, the Fed is seeking ways of emphasizing that it remains determined to keep borrowing costs for businesses and consumers as low as possible well into the future.
The leading candidate, according to the account, is a proposal to include in the Fed’s policy statement, released after each meeting, a formal declaration that the Fed is likely to keep short-term rates relatively low even after it eventually decides to end the long period, dating back to 2008, that it has held those rates near zero.
The Federal Open Market Committee also discussed the possibility of describing some of the factors that it would consider in deciding how quickly to raise rates. So far, the committee has said only that it will keep interest rates near zero at least as long as the unemployment rate remains above 6.5 percent.
The Fed’s chairman, Ben S. Bernanke, employed both approaches in a speech Tuesday night, stating that the 6.5 percent threshold would be the point at which Fed officials would begin to discuss the timing of an initial rate increase. That suggests that when the official unemployment rate, currently at 7.3 percent, reaches that point, it will probably not initiate an immediate increase in the lending tool, known as the federal funds rate, that the Fed directly controls.
MarketWatch’s story said the Fed wanted to broadcast its position on rates and give unemployment guidance in an attempt to prepare investors for tapering of quantitative easing:
The Fed also was eager to clarify or strengthen the forward guidance for rates. “Several” said extra qualitative information could be provided after the 6.5% unemployment rate threshold was actually reached, which by the Fed’s own projections could come next year.
A “couple” wanted to reduce the 6.5% unemployment rate threshold, and a “few” wanted to add that the federal funds rate wouldn’t be raised as long as inflation was projected to run below a given level.
Also on the chalkboard: reducing the interest rate paid on excess reserves, setting up a standing purchase facility for shorter-term Treasury securities or providing term funding through repurchase agreements.
The Bloomberg story added economic context around the state of unemployment and what the Fed might need to see in order to pull back on bond purchases:
The FOMC has pledged to press on with so-called quantitative easing until seeing substantial improvement in the outlook for labor market. Employers added 204,000 workers to payrolls in October, more than forecast by economists, and the unemployment rate has fallen to 7.3 percent from the 8.1 percent rate the month before the central bank began a third round of bond buying in September 2012.
Participants said they still expect a pick-up in the pace of economic activity even as reports suggest growth in the second half of this year may prove to be “somewhat weaker than many of them had previously anticipated,” the minutes said. While they saw less risk for the economy, they also said “several significant risks remained,” specifically citing fiscal drag and budget standoffs.
Fed officials saw the economic impact of the government shutdown “as temporary and limited,” while a number said they were concerned about effects of “repeated fiscal impasses” on business and consumer confidence, according to the minutes.
All of the stories are helping the Fed make its policy well known before it actually makes a move. Having a window into their thoughts should be some comfort to investors. But if they actually believe the guidance remains to be seen.
by Liz Hester
CNBC’s “Money Honey” is moving to Fox Business Network after a 20-year career at the business channel. Bartiromo’s move was first reported by Drudge Report. The move brings Fox Business Network one of the industry’s most prominent faces. Bartiromo is expected to start on Monday, the New York Times said.
This is from the Times story. Read more here.
CNBC confirmed the news Monday, thanking Ms. Bartiromo for her 20-year career at CNBC.
The network issued a statement: “After 20 years of groundbreaking work at CNBC, Maria Bartiromo will be leaving the company as her contract expires on November 24th. Her contributions to CNBC are too numerous to list but we thank her for all of her hard work over the years and wish her the best.”