The Star Online: Business
The Star Online: Business |
- Bernanke says Fed ready to act but short on specifics
- Europe must act strongly to tackle crisis-OECD
- Bernanke raps BIS call for global cooperation by central banks
| Bernanke says Fed ready to act but short on specifics Posted: 31 Aug 2012 06:55 PM PDT JACKSON HOLE, Wyoming: Federal Reserve Chairman Ben Bernanke on Friday left the door wide open to a further easing of monetary policy, saying the stagnation in the U.S. labor market was a "grave concern," but he stopped short of providing a clear signal of imminent action. His stark language gave a temporary lift to U.S. stocks, but economists walked away from the Fed chairman's remarks still divided over whether the central bank would launch a fresh round of bond purchases at its upcoming meeting in September. Bernanke said the Fed had to weigh the costs as well as the benefits of more monetary stimulus, although he hinted the costs were likely worthwhile. "As we assess the benefits and costs of alternative policy approaches ... we must not lose sight of the daunting economic challenges that confront our nation," Bernanke said at the Kansas City Fed's annual Jackson Hole symposium. "Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability." That was a somewhat weaker hint of policy easing than the minutes of the Fed's last policy meeting had delivered, but Bernanke's dour economic assessment left few doubts where his sympathy lay. "The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years," Bernanke said. Financial markets see-sawed in the wake of Bernanke's comments. U.S. stocks closed roughly where they were before Bernanke spoke, but yields on U.S. government bonds hit a three-week low in anticipation of Fed action and the U.S. dollar fell against both the euro and the yen. EYES ON THE LABOR MARKET In response to the financial crisis and recession of 2007-09, the Fed cut overnight interest rates to near zero and bought $2.3 trillion in government and mortgage securities in two separate rounds of so-called quantitative easing. It next meets on September 12-13, and policymakers have been locked in debate over whether further bond purchases are warranted to spur a stronger recovery. Economists said Bernanke's emphasis on the health of the job market throws an especially strong spotlight on a report due on September 7 on job growth in August. Hiring picked up in July but the jobless rate moved up to 8.3 percent. "The speech did not add anything to the information that we had, but, importantly, it did not subtract anything either," said Roberto Perli, managing director of policy research at the International Strategy and Investment Group in Washington. "It did not walk back an inch from the fairly dovish tone of the minutes," he said, adding it was "probably more a question of when, not if" on further asset purchases. DOWNPLAYS RISKS OF UNCONVENTIONAL POLICIES The Fed's aggressive efforts to prop up the economy have drawn criticism from Republican politicians for potentially sowing the seeds for inflation and asset bubbles. Republican presidential hopeful Mitt Romney has said he does not think a third round of quantitative easing, or QE3 in market parlance, would help the economy, and some analysts think the central bank may be hesitant to act ahead of the November 6 presidential election. After September, the Fed has one more policy meeting in late October before Americans go to the polls. Bernanke, however, downplayed the potential risks from the Fed's unconventional policies and argued the asset purchases had been quite effective at boosting economic growth. "The costs of nontraditional policies, when considered carefully, appear manageable," he said. The economy emerged from recession nearly three years ago, but growth has remained tepid. U.S. gross domestic product advanced at a 1.7 percent annual rate in the second quarter, too weak to bring down the nation's elevated unemployment rate. "Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum sustainable employment," Bernanke said. The Fed is charged with pursuing both price stability and full employment. Economic data has improved since the Fed's July 31-August 1 meeting, which came before the stronger-than-expected reading for July employment. Reports on retail sales, exports and housing have also been relatively solid. A report on Friday showed U.S. consumer sentiment hit a three-month high in August, although pessimism on the future remained. The economy's generally better tone has led some market participants to dial back their expectations of a fresh round of Fed bond purchases in September. As an alternative, many economists say, the Fed may simply push further into the future the date it thinks it will finally start to move interest rates higher. The central bank has said since January that it expects to keep rates near zero at least through late 2014. - Reuters |
| Europe must act strongly to tackle crisis-OECD Posted: 31 Aug 2012 06:52 PM PDT JACKSON HOLE, Wyoming: Backing bond market intervention by the European Central Bank, the OECD said on Friday that Europe must seize a "window of opportunity" offered by the relative recent calm of financial markets to tackle the simmering euro zone debt crisis. "I think it is now time that the European authorities push strongly toward a solution," said Pier Carlo Padoan, chief economist of the Paris-based Organization of Economic Cooperation and Development. The OECD represents a respected outside voice on how best to tackle the 2-year crisis, and his comments come just days before the ECB meets to weigh controversial bond market purchases. Padoan said the OECD had been braced for a very rocky August for euro zone financial markets, particularly for Spanish and Italian bonds, but this volatility had not emerged and stock markets were in fact now stronger. "It is time to exploit what seems to be a credit-opening from markets on the European situation, so it is very important that authorities exploit this window of opportunity," he told Reuters in an interview. Padoan, speaking on the sidelines of the annual Jackson Hole policy retreat hosted by the Kansas City Fed, also made clear his support for bond-market buying by the European Central Bank. With less than a week to go before the ECB could decide to intervene directly to prop up Spanish and Italian bond markets, Padoan said he did not believe the wide bond spreads of weaker southern European nations reflected economic fundamentals, but rather the fear that the euro zone could break up. "If that is correct, then the response to that spread has to deal with reassuring markets that the euro zone will not break up, in addition to the fact that those countries must continue with their structural adjustments," he said. "So intervening in bond markets, it is a very important temporary backstop to a wider strategy," he said. "If the ECB comes up with proposals that provide concrete content to the ideas about support of bond markets, that would be extremely important." The ECB meets on Sept. 6 to review a plan to buy Italian and Spanish bonds in order to win breathing space for euro zone leaders to figure out a longer-term response to the euro zone's sovereign debt woes. The plan has met stiff opposition from Germany's Bundesbank, whose president, Jens Weidmann, was also attending the conference in Grand Teton National Park in Wyoming. Weidmann declined to comment to reporters here about a German press report that he had considered resigning over the issue. - Reuters |
| Bernanke raps BIS call for global cooperation by central banks Posted: 31 Aug 2012 06:49 PM PDT JACKSON HOLE, Wyoming: The world's big central banks ought to cooperate more by taking into account the global impact of their individual policy decisions, a top policymaker said on Friday, but he was immediately challenged by Federal Reserve Chairman Ben Bernanke. Jaime Caruana, general manager of the Bank for International Settlements, a global forum for central banks, told some of the world's most powerful policymakers that they must recapture the common sense of purpose they showed when fighting the global financial crisis of 2007-09. "Central banks need to take a more international perspective, recognize their collective influence and take into account monetary policy spillovers," he told policymakers at the annual retreat here, hosted by the Kansas City Fed. U.S. and European central bankers are working to restore growth on both sides of the Atlantic, while weighing up the costs and benefits of further action that critics say could contribute to an even more serious financial crisis in the future. Bernanke, in the audience at the luncheon address, did not flatly reject the suggestion, but he noted that a discussion about international monetary policy cooperation also implied cooperation on foreign exchange rates. "A problem is, of course, that a lot of exchange rate policy is not made by central banks, it is made by finance ministries ... so I think you have opened up a much more complicated coordination problem than central banks sitting together and reasoning together." Caruana cheerfully agreed that he was absolutely correct -- drawing general laughter from policymakers that included the governor of the Bank of Japan and president of the Bundesbank as well as the chief of the U.S. central bank -- but stuck to his guns and insisted the question was still legitimate to pose. Arguing globalization intensified spillovers from financial market disruptions in one country into another, he added that this indicated the need to take the global impact of domestic policy decisions into account. "This does not necessarily mean monetary policy coordination at the global level, but it does require central banks to better appreciate, internalize and share the side effects that arise from individual monetary policies," he said. Caruana also said he was "sympathetic" for calls for central bankers to grant "global considerations" an explicit role in their decision-taking, but doubted this could be formalized. "The major central banks would not be able to publicly outline the mutual consistency of their policies. Drawing attention to areas of inconsistency and dissent would probably undermine effective cooperation," he said. - Reuters |
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