Tag Archives: interest rates

Fed Talk=$ Rally?

By Andrew Busch | Published: March 28, 2011

On March 25th, Philadelphia Fed President Plosser surprised the markets by laying out a strategy for withdrawing the massive monetary stimulus pumped in over the last 4 years and stated that an improving economy means policy makers should consider how to exit. He stated that the Fed should sell assets from its balance sheet and raise interest rates at the same time.

On March 26th, St. Louis Fed President Bullard stated that the FOMC should review QE2 to see if it could be completed early as the economy may not need it as it has rebounded. He went on to … …READ MORE

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Positive US Cycle Accelerating

By Andrew Busch | Published: December 17, 2010

By now, you have seen that late last night the US House passed President Obama’s tax and spending bill. Despite the hyperbole from the left, lame duck Democrats joined Republicans to ensure the US economy avoid a disastrous hike in tax rates. Most economists are calling for the measure to add 0.5-1.0% to GDP and taking the US economy up to 3.0-4.0% growth for 2011.

In turn, this has triggered a fascinating development in the financial markets. US interest rates have soared with the yield on the US Treasury 10 year note rising over 100 basis points to 3.55%. While … …READ MORE

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UK To Rev Up QE2?….or not:

By Andrew Busch | Published: September 28, 2010

Today, the Bank of England’s Adam Posen stated that the central bank needs to address persistent slow growth by starting another round of quantitative easing. Here’s his argument: “There remains a significant gap between what the economy could be producing at full employment and what it currently produces….Monetary policy should continue to be aggressive about promoting recovery, and, subject to further debate, I think further easing should be undertaken.” This is the opposite of what Bank of England’s Andrew Sentence just yesterday (raise rates to combat inflation). These opposite views on the outlook for risks to the UK economy generate … …READ MORE

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Fed Talks, But Will They Listen?

By Andrew Busch | Published: April 7, 2010

Today is Fed appreciation day with three speakers including the big guy, Ben Bernanke, are having a go at explaining their outlook for monetary policy. To be honest, I’m more interested in what Hoenig has to say especially since he continues to dissent. During the Greenspan era, the lack of dissent was detrimental to the policy making by the central bank. The recent interview by former Fed chairman Alan Greenspan is instructive when you only think with one mind: Referring to the housing bubble, “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”

Given the success of Michael … …READ MORE

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No Top For Rates or Agency Debt

By Andrew Busch | Published: December 29, 2009

Yesterday, I tweeted about the Xmas Eve decision by the Obama administration on FNM and FRE. The cap to lending to these two mortgage giants was lifted and could cover unlimited losses over the next three years. The US Treasury receives preferred stock in both companies paying 10% dividends. Already, the US has paid out $111 billion: $60 billion to Fannie and $51 billion to Freddie. The previous cap was $400 billion. Treasury said that this was “necessary for preserving the continued strength and stability of the mortgage market.”

Why was this done at this time? The driver was a … …READ MORE

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Bernanke Vote Today

By Andrew Busch | Published: December 17, 2009

Benigans Part II

Today, the US Senate Banking committee will likely vote to recommend current Federal Reserve chairman for another four year term. This is not interesting. What is interesting is the increasing number of senators that are saying they will vote against him. Clearly, the American public needs a villain or several villains for what happened over the last 2 years. Goldman is one of them. The other appears to be Bernanke. Someone needs to take the blame for the 10% unemployment rate. Middle income voters feel that Bernanke & Co. bailed out Wall Street over Main Street. The … …READ MORE

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It's All About Ben!

By Andrew Busch | Published: December 16, 2009

With growth returning and unemployment seemingly peaked, will the FOMC have to exit their massive stimulus. Here are 5 things to ponder for today:

1. A Bernanke Fed has never raised rates in an aggressive manner to combat either inflation or bubbles.

2. Wages are the major factor influencing prices in the United States and Bernanke believes we remain well below levels that will create pressure.

3. Gold and other commodities indicate inflation is a looming problem.

4. Fiscal policy is on a path to a crisis with total debt in the United States growing almost 20% in one year. … …READ MORE

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Fed's Disaster Movie

By Andrew Busch | Published: November 18, 2009

President and CEO of the Federal Reserve Bank of St. Louis James Bullard said that policy makers may not start to raise rates until early 2012 while facing a “too low for two long” argument that may “weigh heavily” on the central bank. “The main challenge for monetary policy going forward will be how to adjust the asset purchase program without generating inflation and still providing support to the economy while interest rates are near zero.”

This should come as no surprise coming from Bullard. Back on September 1st, Bullard said the Federal Reserve interest rate hikes may be “quite … …READ MORE

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How The Treasury Can Sell So Much Debt For So Little For Now…..

By Andrew Busch | Published: October 30, 2009

It’s called carry, but not like currency carry. As most know, banks can fund themselves at 0.1%-0.25% as the Federal Reserve keeps Fed Funds at 0.0%-0.25%. Then banks are incentivized to find the safest, highest return they can with this cash.

Now, the US Treasury and the Federal Reserve hope that this low cost of funding to banks would make lending more attractive and incent banks to make new loans. As the Fed loan surveys show, this is now occurring and new lending is not being generated. This is a phenomenon that is not only occurring in the United States, … …READ MORE

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Australia Leads Where the Fed Needs To Go

By Andrew Busch | Published: October 6, 2009

Today in a somewhat surprise move, the Reserve Bank of Australia raised interest rates 25 basis points to 3.25%. The RBA becomes the first G20 central bank to officially begin an exit strategy from monetary easing to stem the global financial crisis. They had previously cut rates a record 425 basis points. RBA Governor Stevens said, “The risk of serious economic contraction has passed.”

Australia didn’t experience a contraction to the extent that Western countries have and is fortunately tied to economic stimulus in China. However, this tie comes at a cost as the massive Chinese loan stimulus has bled … …READ MORE

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