Tag Archives: Economics reporting

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Reuters seeks economy reporter in DC

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Reuters is seeking a correspondent to write detailed, accurate and insightful stories on the US economy and economic policy, with an understanding of what data and policies mean for financial markets and US monetary policy.

Evaluate news leads and tips in order to develop compelling story ideas. Interview prominent economists at financial and academic institutions to create stories that meet company’s editorial style and standards.

The stories must convey useful information to subject area experts and financial market participants. Assess economic data to determine its newsworthiness and write accurate, insightful stories based on the data, often under tight time and competitive pressures.

Periodically cover the International Monetary Fund, the World Bank, US Treasury and Federal Reserve and review the data they produce in order to provide accurate analyses for consumers.

Qualifications

Bachelor’s degree in Economics, Journalism, Communications or a related field plus 5 years of progressive experience as a journalist with a major international news agency. Experience reporting on the economy of a G-20 member nation, including fiscal and monetary policy, inflation, gross domestic product, trade, retail sales, manufacturing and labor statistics. Experience reporting on industrial companies including company results and share prices and conducting interviews with high-level company executives. Experience reporting on stock exchanges, treasuries and foreign exchange markets.

To apply, go here.

Christmas retail sales

Assessing holiday sales

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It’s now time for retailers to report exactly how good (or bad) the holiday shopping season was last year. While the importance is well reported, the numbers usually are a harbinger for consumer sentiment and coming spending levels.

Anna Prior wrote for the Wall Street Journal that many stores had a tough season, with big-box store Costco as a lone standout:

Heavy discounting and slow traffic weighed on retailers’ December sales results, but Costco Wholesale Corp. COST +3.91% was among the few that bucked the trend.

The wholesale club reported sales at stores open at least a year rose 5% for the month, topping expectations for a 2.6% increase. Among the stronger performing categories were garden, automotive, apparel, small appliances and home furnishings. The consumer electronics category posted improvement from recent months, but the metric still declined slightly.

A number of retailers have offered disappointing holiday updates in recent days, suggesting the critical holiday period was marked by heavy promotions, especially for apparel and consumer electronics.

Although sales and store traffic appeared to pick up at the beginning of the Thanksgiving holiday weekend, shoppers took a break and didn’t start buying in earnest again until the week before Christmas.

At the same time, online sales were stronger than expected, but Ken Perkins of Retail Metrics said shopping on the web likely didn’t expand the overall spending pie so much as shift how and where that money was spent.

Driven largely by Costco, the eight retailers tracked by Thomson Reuters that have reported so far recorded a 2.7% increase in December same-store sales, or sales at stores open at least a year. Gap Inc. GPS +0.56% is scheduled to report after the market closes. Thomson Reuters projects the nine companies to post 1.9% growth, compared with a 7.2% increase a year earlier.

The New York Times reporter Julie Bosman wrote a story about Barnes & Noble’s lackluster year:

Barnes & Noble, the nation’s last remaining major bookstore chain, experienced steep sales declines in its digital division during the nine-week holiday period, the company announced on Thursday.

Revenue in the Nook division, which includes digital content and devices, was $125 million, a 60 percent drop compared with the period a year earlier.

Sales in its brick-and-mortar bookstores were less grim, with a 6.6 percent decrease from the previous year, to $1.1 billion.

The numbers reflect Barnes & Noble’s decreasing digital ambitions, as it declined to release a new color tablet in 2013. The bookseller has said it will pull back from trying to compete in the crowded tablet market against big companies like Amazon and Apple.

The release of the sales data came one day after Barnes & Noble announced that it had filled the long-vacant post of chief executive with a company insider, Michael P. Huseby, previously the president of Barnes & Noble and chief executive of Nook Media.

ReutersPhil Wahba reported that many retailers were beginning to cut earnings forecasts after discounts cut into their holiday numbers:

Many large U.S. retailers slashed their earnings forecasts on Thursday because of steep discounts they offered during the holidays to persuade reluctant consumers.

The discounts boosted overall industry sales but hurt profits at many chains, including L Brands Inc, Family Dollar Stores Inc and teen retailer Zumiez Inc. Even retailers that reported big sales gains, like Kay Jewelers parent Signet Jewelers Ltd, were not spared.

Fewer store visits and aggressive pricing at the start of the season by big retailers like Amazon.com Inc and Wal-Mart Stores Inc left many chains with little choice but to offer sweeter deals. Many also had too much holiday merchandise, which was ordered in late spring when retail executives were feeling upbeat.

“The discounts needed to be deeper, and they needed to be longer,” said Joel Bines, managing director of consulting firm AlixPartners.

The discounts did result in a stronger-than-expected 2.7 percent increase in December sales at the eight retailers tracked by the Thomson Reuters Same-Store Sales Index.

Still, L Brands cut its holiday-quarter profit forecast on disappointing December sales at its Victoria Secret and La Senza chains.

While L Brands’ sales at stores open at least year rose 2 percent last month, Wall Street had been expecting a gain of 3.7 percent, according to Thomson Reuters I/B/E/S. The company’s shares fell more than 4 percent.

Bloomberg’s Nick Taborek reported that retail stocks slid across the board on the news, indicating that investors are leery of what’s coming for many stores:

Retailers retreated 0.2 percent as a group. Companies from L Brands, which owns the Victoria’s Secret and Bath & Body Works brands, to discount chain Family Dollar (FDO) cut profit forecasts, showing the price war that marked the holiday season is taking a toll.

Family Dollar slid 2.1 percent to $64.97 and L Brands lost 4.1 percent to $57.75. The companies cut profit forecasts after reporting disappointing December sales as promotions that failed to lure shoppers hurt margins.

Bed Bath & Beyond slumped 12 percent to $69.75. The retailer projected fourth-quarter earnings of $1.60 to $1.67 a share, less than the $1.79 that analysts had estimated. Home-goods merchant Pier 1 Imports Inc. tumbled 12 percent to $20.44 as it also lowered its quarterly forecast.

While the Federal Reserve Board watches for more signs of growth in order to continue pulling back from its bond-buying program, signs that the economic recovery will continue are mixed. It doesn’t bode well if the backbone of the economy is cutting earnings forecasts and bracing for steeper discounts.

federal-reserve-400

Fed minutes show officials watching for stability

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Minutes from the last Federal Reserve Board meeting where officials announced they were beginning to pull back from its bond-buying program showed officials are still cautious on the economy.

Jon Hilsenrath and Victoria McGrane wrote for the Wall Street Journal that one of the next pieces of business for the Fed would be watching for asset bubbles:

Federal Reserve officials in December turned their attention to the risk of dangerous financial bubbles emerging as they scanned a brightening economic outlook and formulated a plan to gradually wind down their bond-buying program this year.

While officials agreed that threats to financial stability were modest, the issue was at the center of wide-ranging discussions about emerging threats to the economy, according to minutes of the central bank’s Dec. 17-18 policy meeting, which were released Wednesday with the traditional three-week lag.

Watching for bubble threats could become one of the first big issues on the plate of Fed Vice Chairwoman Janet Yellen, who takes the reins as chairwoman on Feb. 1 after Ben Bernanke’s term as the Fed’s leader ends.

The Fed decided last month to reduce its monthly bond purchases to $75 billion from $85 billion. Barring a surprise in the economic data, the Fed is expected to shrink the size of its bond-buying again at its next policy meeting Jan. 28-29.

“The Fed is looking for evidence that they may be creating asset bubbles,” said Dan Greenhaus, chief global strategist at brokerage firm BTIG LLC. “That’s better than not looking.”

The Bloomberg story by Joshua Zumbrun and Craig Torres said that officials would discuss the next step for reducing the pace of bond buying as the economy gets stronger:

“A lot of people in the market think asset purchases have had declining benefits over time, and this is the first time I can recall the committee as a whole has really come out and agreed with that sentiment,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

“The economy seems to be able to stand more on its own now,” Feroli said.

Some Fed officials “expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected,” the minutes said.

At the same time, “several” officials noted that “a range of other indicators had shown less progress toward levels consistent with a full recovery in the labor market, and that the projected pickup in economic growth was not assured.”

The committee cut monthly purchases to $75 billion in December, from $85 billion, citing improvement in the labor market that pushed the jobless rate down to a five-year low of 7 percent.

The New York Times piece by Binyamin Appelbaum pointed out that the decision to reduce purchases is the final act by outgoing chairman Ben Bernanke:

The Fed’s path forward is a final compromise forged by its outgoing chairman, Ben S. Bernanke. Some Fed officials worry that the economy needs still more help; others argue that the Fed already is doing more harm than good.

Mr. Bernanke, who will step down at the end of the month, predicted in June that the Fed would taper by the end of the year, and it did.

“Participants generally anticipated that the improvement in labor market conditions would continue, and most had become more confident in that outlook,” the account said. “Against this backdrop, most participants saw a reduction in the pace of purchases as appropriate at this meeting and consistent with the committee’s previous policy communications.”

The next wave of decisions will be made under new leadership. The Senate confirmed the Fed’s vice chairwoman, Janet L. Yellen, as Mr. Bernanke’s successor earlier this week. She will lead her first meeting of the Fed’s policy-making committee in March. While Ms. Yellen has expressed concerns about the labor market, she supported the decision to start tempering the stimulus efforts.

Paul Davidson wrote in USA Today that the Fed will continue to keep interest rates low after unemployment falls below 6.5%:

The Fed emphasized that the pace of the tapering would depend on the course of the economy, but that the Fed likely would cut the purchases “in further measured steps at future meetings,” assuming the economy continues to advance. At his post-meeting news conference, Fed Chairman Ben Bernanke indicated purchases could be reduced in increments of $10 billion and halted by the end of 2014.

The Fed also emphasized that it would keep short-term interest rates near zero until “well past” the time unemployment reaches its 6.5% threshold.

At the meeting, some Fed officials argued for lowering the threshold to 6%, saying that would be a “clear signal” of their intentions “in light of recent labor market and inflation trends.” They were particularly worried that investors would interpret the tapering as a signal that the Fed would increase its benchmark short-term rate earlier than anticipated, an assumption that would push up rates. Since the meeting, 10-year Treasury yields have risen relatively modestly from about 2.85% to about 3%.

But “a few others” said modifying the threshold “might be confusing and could undermine the credibility” of the Fed’s guidance.

So far, the Fed’s guidance has been fairly clear and consistent, allowing the markets to remain fairly stable. It will be interesting to see how Yellen will lead the organization, but if she follows Bernanke’s lead, at least investors will continue to have a window into how they’re making decisions.

Paul Volcker

Volcker Rule back in the news

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Reports Tuesday that Congress is considering changing some provisions of the Volcker Rule came as banks started to react to the new law.

Floyd Norris wrote about the potential changes in the New York Times:

When Zions Bank announced last month that it expected to take a big loss because of the Volcker Rule, it set off alarms all over Washington. Regulators scrambled to say they were considering changing the rule, but that was evidently not enough for some legislators.

Representative Jeb Hensarling, a Republican of Texas and chairman of the House Financial Services Committee, is expected to propose a bill that could open up a huge loophole in the rule. The proposed change could allow banks to create and own securities with many types of investments that are barred under the Volcker Rule, which is intended to prohibit speculative trading by banks while letting them both make markets for customers and hedge other investments.

Jeff Emerson, an aide to Mr. Hensarling, said on Tuesday that the chairman expected to propose the bill soon. A copy of it was provided by another congressional aide, who declined to be identified. It was that aide who raised the possibility of widespread abuse if the legislation were enacted.

Zions, based in Salt Lake City, said that it expected to post the loss because it owned a large number of collateralized debt obligations that contained trust-preferred securities, known as TruPS, issued by other banks. The bank said it would have to post the loss, which it estimated at $387 million before taxes, because it would no longer be able use an accounting rule that allowed it to keep losses on those securities off its earnings statement, although they were disclosed in footnotes.

That accounting treatment depended on the bank being able to say it expected to retain the securities until they matured, something it would not be able to do if the Volcker Rule would require the sale of the securities, even if the sales could be delayed for several years.

Stephen Gandel wrote in CNN Money that bankers were upset that they might have to show losses on the securities:

Bankers, nonetheless, cried foul. In late December, the American Banking Association sued to halt the Volcker Rule from going into effect, saying it was unfairly punishing Zions and hundreds of other small banks that had bought TruPs CDOs. Almost immediately, regulators announced they were reviewing TruPs and the Volcker Rule. And now it looks likely regulators will exempt the securities.

The retreat from regulators is understandable. The purpose of the Volcker Rule was to deter banks from making risky trades with their own money. TruPs CDOs are not actually hedge funds, or a proprietary trade. As Zions said, it planned to hold the CDOs to maturity, and that makes them more like many other bonds that banks buy and are still allowed to hold under Volcker. And they are largely held by small banks, not the large banks that threatened the economy in the financial crisis. So, not the types of things that the Volcker Rule was set up to limit.

But that doesn’t mean banning TruPs CDOs is a bad thing. TruPs are a type of debt that is sold by banks and other financial firms. The financial crisis threw into sharp relief the fact that the system was too interconnected. If one large bank were to fail, they would all go down. Banning banks from holding a type of debt could limit that risk. And banks would still be allowed to own TruPs, just not in CDOs, which makes it easier for banks to hide losses.

While regulators sort through the outcomes from the new law, Citigroup is also considering selling some private equity investments in order to comply with the new rules, Shayndi Raice wrote in the Wall Street Journal:

Citigroup Inc. is considering selling its $1 billion stake in a private-equity fund to comply with new federal rules, said a person familiar with the matter.

The move is in line with Citigroup’s strategy of shedding its private-equity and hedge-fund assets to comply with the so-called Volcker rule, part of the Dodd Frank financial overhaul, which forbids banks from investing in funds they don’t manage. It also caps the amount a bank can invest in such a fund to 3% of the fund’s assets.

Citigroup is considering selling its remaining stake in an emerging-markets fund it sold in August to the Rohatyn Group, a private-equity fund run by Nick Rohatyn, son of financier Felix Rohatyn. During meetings with the Rohatyn Group, investors expressed interest in purchasing Citigroup’s stake, said the person. A formal offer for the stake could come in the first half of 2014, the person added.

Citigroup executives have acknowledged for some time that they will need to sell the stake or ask for an extension to comply with the Volcker rule.

Reuters reported in a story by Huw Jones that the European Union’s proposal isn’t as strong as the U.S. regulations:

Banks in the European Union face limits on taking market bets with their own money under a draft EU proposal that represents a central plank of attempts to prevent a repeat of the financial crisis of 2007 to 2009.

Policymakers want to rein in excessive trading risks in the EU banking sector, whose assets total some 43 trillion euros ($59 trillion), that could threaten depositors if trades go wrong and potentially put taxpayers on the hook in a rescue.

Yet the EU proposal, seen by Reuters on Monday, has already been described as a watered-down measure designed to ensure approval across the bloc and which is less rigorous than equivalent “Volker Rule” regulations being introduced in the United States.

It seems that despite the best intentions of regulators putting the laws into practice isn’t as easy as it first appears. There are some unintended consequences for the banks and for those trying to curb their investments.

Deflation

Could deflation hit Europe?

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As the U.S. economy picks up and the Federal Reserve Board pulls back on its economic stimulus, the rest of the world continues to struggle with weakness.

The Wall Street Journal’s Stephen Fidler had this story:

Anxieties are rising in the euro zone that deflation—the phenomenon of persistent falling prices across the economy that blighted the lives of millions in the 1930s—may be starting to take root as it did in Japan in the mid-1990s. “Deflation: the hidden threat,” ran a headline emblazoned across a December research note by economists at HSBC.

At last count, prices are falling only in Latvia, Greece and Cyprus. And most forecasters, including those at HSBC, see low inflation as more likely than deflation on average in the euro zone.

But inflation is stubbornly low, under 1% on average across the 18-nation bloc, despite the money that the European Central Bank has been pumping into the economy with the aim of spurring investment and growth, actions that often push up inflation. That is way under the ECB target of “below, but close to 2%,” and, if the average is below 1%, more economies using the euro are at risk of deflation.

Why worry? If economies cope with inflation, why not with deflation? For centuries until World War II, capitalist economies experienced periods of severe deflation interspersed with spells of inflation and continued on a path of long-term growth.

Ian Wishart and Kristian Siedenburg wrote for Bloomberg Businessweek that leaders in Europe were struggling to find a way to help the economy grow:

European Union leaders pondering the fruits of a 120 billion-euro ($163 billion) push to jump-start the economy and create jobs can look to data this week for evidence of how little has been achieved.

The euro-area unemployment rate probably held near a record in November at 12.1 percent, according to the median estimate in a Bloomberg News survey of economists. That report on Jan. 8 follows tomorrow’s release of December consumer-price data. Analysts see inflation hovering near the four-year low that preceded a surprise interest-rate cut a month earlier by the European Central Bank.

In December, EU leaders acknowledged their struggle to create jobs, 18 months after they unveiled the Compact for Growth and Jobs, saying unemployment remains “unacceptably high.” Governments are relying for continued support from the ECB, which may this week repeat its vow to keep its policy accomodative for “as long as necessary.”

“Unemployment is bound to remain high amid a sluggish recovery,” said Tobias Blattner, senior economist at Bank of America (BAC:US)Merrill Lynch in (MER:US)London. “And with credit remaining scarce and expensive in large parts of the euro area, inflation will fail to creep higher. Deflation fears, however, are unlikely to materialize.”

With the euro-zone economy battered by the debt crisis and slow to shake off a record-long recession, policy makers are struggling to find a recipe for growth. The ECB estimates that the euro-area economy contracted 0.4 percent in 2013 and will expand 1.1 percent this year.

Bloomberg’s Kasia Klimasinska reported Jan. 3 that even U.S. officials are trying to help Europe avoid deflation and shore up the monetary policy:

U.S. Treasury Secretary Jacob J. Lew will urge European officials next week to pursue policies that boost economic growth, avoid deflation and strengthen the banking system, a Treasury official said today.

Euro-area domestic demand remains below its 2009 level when measured in real terms, and the unemployment rate is the highest in at least 20 years, the official, speaking on condition of not being further identified, told reporters on a conference call. Lew departs Jan. 6 on his fourth visit to Europe since he took office in February 2013.

Lew is scheduled to meet with French President Francois Hollande and Finance MinisterPierre Moscovici on Jan. 7. On Jan. 8 he will meet with German Finance Minister Wolfgang Schaeuble in Berlin before traveling to Lisbon later that day for talks with Portuguese government officials.

Szu Ping Chan wrote Dec. 28 in the U.K. Telegraph that Europe’s lack of action was pushing it toward deflation:

The eurozone is “sleepwalking” its way towards a Japanese-style deflationary trap that could last decades, the world’s largest bond fund has warned.

The Pacific Investment Management Company (PIMCO) said deflation posed the biggest threat to the single currency bloc in 2014. A stubbornly strong euro together with painfully slow reforms and a “paucity of ambition” threatened to push the bloc’s already low inflation rate into negative territory, the fund said.

“The demographics in large parts of Europe aren’t great,” said Mike Amey, portfolio manager and managing director at PIMCO.

“Even now, success in Europe is defined by 12pc unemployment and a growth rate of between zero and 1pc. If that’s success, they are at risk of slipping into deflation just because they’re willing to tolerate these economic conditions.”

Deflation poses a threat to economies, because if prices are falling people put off spending in anticipation of further falls. Retailers are forced to slash prices, which leads to declining profits, lower wages and people struggling to meet fixed loan repayments because of falling salaries.

While it experts disagree whether Europe will actually slip into full deflation or stay at extremely low inflation rates, it’s still a bit troubling that European policy makers don’t seem to be moving quickly to provide stimulus. Money managers will be watching closely to see what the economy will do and how it will impact their portfolios.

Ezra Klein

WaPo economics columnist Klein planning to leave

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Washington Post economics columnist Ezra Klein plans to leave the newspaper after failing to win support for a new website he wanted to create within the company, reports Ravi Somaiya of the New York Times.

Somaiya writes, “Klein, who quickly ascended into the ranks of the Washington media establishment with a multiplatform blend of policy nuance and number-crunching on Wonkblog, approached Katharine Weymouth, the Post’s publisher, in recent weeks, the people said.

“After consultation with the newspaper’s editor, Marty Baron, according to one of the people, he put forward a proposal with detailed revenue projections to build a new website dedicated to explanatory journalism on a wide range of topics beyond political policy. It would have been affiliated with The Post, the person said, but would have been a separate enterprise. The investment he sought, the person said, was in eight figures.

“Ms. Weymouth and the paper’s owner, Jeff Bezos, declined to support the project. Since then, Mr. Klein has had discussions with several potential investors and venture capitalists in an effort to start the website himself, said those with knowledge of his plans, who insisted on anonymity in discussing them.

“Though the atmosphere within The Post was described as civilized, one person said, there has been some awkwardness. Still, it is possible that Mr. Klein could remain at The Post if talks about his plans were rekindled.”

Read more here.

Labor Department

Labor Department needs to improve data release to media

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The U.S. Labor Department should either tighten the procedures that it uses to release market-sensitive data to the media or scrap them altogether and distribute the data directly to the public, a watchdog for the department said on Thursday.

Margaret Chadbourn of Reuters writes, “The recommendation to tighten the so-called lockup process, specifically the department’s weekly jobless claims figures, was included in an audit released by the Labor Department’s Office of Inspector General. The panel was reviewing the process in an effort to prevent the possibility that some investors could have an unfair competitive advantage in buying and selling stocks, bonds and other trading assets.

“Under the lockup procedure, media outlets are ‘locked’ in a room where they receive embargoed copies of data reports, usually about 30 minutes before the designated release time, and do not have the ability to post stories until the embargo is lifted.

“The lockups were initiated in the mid-1980s.

“Government officials are looking to mitigate the crush of high-speed trading systems that have set up systems to retrieve information seconds ahead of the public. High-speed trading has grown significantly in the past decade and is often a key part of some hedge funds’ investment strategies.

“The lockups allow media outlets to sell data reports to clients, including high-frequency, or algorithmic, trading firms.”

Read more here.

Alister Bull

Bull leaving Reuters DC bureau

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Alister Bull, who has spent most of the past nine years covering the Federal Reserve Board and the economy for Reuters, is leaving the news organization, his co-workers have confirmed.

Bull has not yet written a farewell note and does not have any post-Reuters plans, those co-workers stated. Along with the Federal Reserve, Bull covered the White House and the Treasury and the Iraq War. He has a deep knowledge of macroeconomic policy.

“I will stay in Washington and plan to keep working on macro economic and monetary policy issues,” said Bull in an email to Talking Biz News on Monday afternoon.

His departure, part of the job cutting at Reuters announced earlier this year, will leave the news organization without a full-time reporter covering the Fed. Its other Fed reporter, Pedro Da Costa, left last month for The Wall Street Journal.

Bull previously reported for Reuters from Germany, South Africa, the Netherlands, the United Kingdom and Iraq and has been with the news organization since April 1987.

In this February 2011 press conference about Egypt, President Obama called on Bull first.

Fed

Fed decides to scale back stimulus

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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.

Fed

Obama picks Fischer for No. 2 spot at Fed

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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.