US news

Federal Reserve chair tells House committee that no decision has been made but a rise in rates is still a ‘live possibility’ despite continued low inflation. “At this point, I see the US economy as performing well.” Janet Yellen said…

 

Powered by Guardian.co.ukThis article titled “Janet Yellen says December interest rate hike is still on the table” was written by Jana Kasperkevic in New York, for theguardian.com on Wednesday 4th November 2015 17.23 UTC

A December interest rate increase is still on the table, US Federal Reserve chair Janet Yellen said Wednesday during testimony before the House financial services committee.

Asked by New York congresswoman Carolyn Maloney, a Democrat, whether the risk of raising rates in December outweigh the benefits, Yellen said that the committee has made no decision yet but that December rate hike was still a “live possibility”.

Her testimony comes exactly a week after the Federal Reserve chose not to raise interest rates in October.

“At this point, I see the US economy as performing well. Domestic spending has been growing at a solid pace,” Yellen said. She added, however, that trade performance and net exports are soft and that there has been a slowdown in job gains recently. The US economy added 64,000 fewer jobs in September than expected.

“Inflation is, as you mentioned, running considerably below our 2% objective. Nevertheless, the committee judges that an important reason for that is the declines in energy prices and the prices of non-energy imports,” Yellen told Maloney. (Crude oil prices were falling on Wednesday morning after a brief rally early in the week.) “As those matters stabilize, inflation will move back to our 2% target. With this economic backdrop in mind, the committee indicated in our most recent statement that it could be appropriate to adjust rates in our next meeting.”

Yellen went on to add that “no decision has been made on that” and that it will depend on the data assessed by the committee before it meets in December. That includes two more jobs reports, one of which will be released this coming Friday.

“What the committee has been expecting is that the economy will continue to grow at a pace that’s sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term,” said Yellen. “If the incoming information supports that expectation, then our statement indicates that December would be a live possibility, but, importantly, that we have made no decisions about it.”

Yellen added that if the data is there to support a rate hike, such a move would be “a prudent thing to do” because it would allow the Federal Reserve to move at a “gradual and measured pace”.

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USA 

Ben Bernanke describes US economy as ‘far from satisfactory’ and shares concern over unemployment and growth. The Fed Chairman keeps the door open to another, third round of quantitative easing should the economy worsen…



Powered by Guardian.co.ukThis article titled “Markets pick up as Fed chairman signals possibility of third round of QE” was written by Dominic Rushe in New York and Phillip Inman, for The Guardian on Friday 31st August 2012 21.56 UTC

US central bank chief Ben Bernanke sparked a surge in share values on Friday after he signalled his willingness to embark on a third phase of money creation to boost the US economy.

The Dow Jones industrial average closed the day with a gain of 90 points after the chairman of the Federal Reserve gave a robust defence of past central bank interventions, which, traders said, prepared the ground for a third round of quantitative easing should the economic picture worsen. France’s CAC and the German DAX closed up 1%.

In his much anticipated a speech in Jackson Hole, Wyoming, Bernanke described the current economic situation as “far from satisfactory”. He said that high rates of unemployment were 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 years”.

His speech to the annual central bank symposium came ahead of September’s meeting of the Federal Reserve’s open markets committee (FOMC), which sets US economic policy. Recently released minutes from its last meeting show the committee has become increasingly concerned about the US recovery and is weighing further action.

However, since the last FOMC meeting, more positive economic news has emerged on jobs and housing. Next week the closely watched non-farm payroll survey of monthly employment trends will be released. After a sharp rise over the winter, job growth slowed in the spring, but appears to be picking up again.

He urged European leaders to make faster progress in tackling the debt crisis affecting Greece and other indebted eurozone countries. His concerns that Europe may drag the US back into recession were highlighted by figures showing that unemployment across the zone remained at an all-time high in July.

The European Union’s statistical agency, Eurostat, said 88,000 more people were without a job in July, pushing the total out of work in the eurozone to 18m, the highest level since monetary union in 1999.

The 11.3% unemployment rate, up 1.2 points from a year earlier, failed to come down after joblessness increased in Spain and bailed-out Greece. In Spain youth unemployment stood at 52.9%, in Greece at 53.8%.

Any monetary action by the Fed is likely to trigger a furious response from elements within the Republican party who have criticised his past actions and warned against new measures.

Mitt Romney, the Republican presidential candidate, has made it clear he will replace the Fed chief, who he accuses of putting taxpayers’ cash at risk, if he is elected in November.

The House financial services committee chairman, Spencer Bachus, told Bernanke last month at a congressional hearing: “The truth is the Federal Reserve cannot rescue Americans from the consequences of failed economic and regulatory policies passed by Congress and signed by the president.”

The initial US quantitative easing programme from November 2008 to May 2010 saw the Fed buy $1.75tn in debt held by mortgage providers Fannie Mae and Freddie Mac, a range of mortgage-backed securities and government bonds, mostly from the country’s 3,000 banks.

A second round, dubbed QE2, involved an additional $600bn. “Operation Twist” began in September 2011 with a pledge to swap $400bn in short-term loans for longer term bonds, with an extension in June adding a further $267bn.

Bernanke offered a strong defence of his actions at Jackson Hole. “A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks,” he said.

In a swipe at Republican critics who accuse him of jeopardising hundreds of billions of taxpayer funds following the expansion of Federal Reserve loans, he said loans by the Fed since the bank rescues of 2008 had earned money for the exchequer.

David Zervos, head of global fixed income strategy at US investment bank Jefferies, said it was unlikely the Fed would back a further round of central bank lending before the presidential election in November.

“The idea that the Fed would come out with unconventional monetary policy, such as credit easing of some kind, seems to be a little bit of a stretch,” he said.

“This was a backstop speech that gets Bernanke through. If the data turns or Europe turns, then the Fed is back in.”

Gus Faucher, senior economist at PNC Financial Services, said: “It sure sounds to me like he is getting ready to act.”

He said the FOMC would now be waiting for the non-farm payroll figures. In July, the US added 163,000 new jobs, more than many economists had expected. Faucher is predicting that 130,000 new jobs were added in August, while other analysts are expecting about 100,000.

“If it comes in below 100,000, I think the Fed will act,” he said. “That would be four out of five months below 100,000. That’s not good enough.”

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The U.S. economy added 163,000 jobs in July but the unemployment rate remained stubbornly above 8% for another month with an increase to 8.3%; Rebalancing of US economy is underway but retail sales and factory orders data point to weaker jobs growth in months ahead…



Powered by Guardian.co.ukThis article titled “US jobs data less rosy than they seem” was written by Larry Elliott, economics editor, for guardian.co.uk on Friday 3rd August 2012 14.47 UTC

There are three months to go until the US presidential election so the America jobs report will cheer Barack Obama after recent signs that the world’s biggest economy was coming off the boil. But the figures were not unalloyed good news for the president.

On the upside, the increase of 163,000 in non-farm payrolls was a lot better than the 100,000 rise Wall Street had been expecting. What’s more, the detail was encouraging, with a hefty jump in private-sector employment and a 25,000 increase in manufacturing jobs. A modest and long overdue, but welcome, rebalancing of the US economy is underway.

That said, the expansion of the labour market is no great shakes more than three years into a recovery, and extremely poor by US standards – America was once the envy of the world for its ability to create jobs in the upswings after recessions.

The payrolls numbers were accompanied by a household survey of unemployment which showed the jobless rate climbing from 8.2% to 8.3%, 0.4 points higher than when Obama became president.

The U6 rate, which includes people who are working fewer hours than they would like, rose to 15%. Throw in a labour participation rate lower than it was four years ago, and tepid wages growth, and the picture is of jobs data good enough to rule out for the time being any fresh steps from the Federal Reserve to boost activity but not good enough to prove conclusively that the economy is emerging from its soft patch.

Obama would no doubt like a helping hand from the Fed, but if Ben Bernanke and his colleagues were not prepared to do more quantitative easing when jobs growth slowed between April and June, they are unlikely to do so now.

As in Britain, the labour market seems to be in slightly better shape than the economy as a whole. As Chris Williamson of Markit noted, the recent data for retail sales and for factory orders has been weak, suggesting that the economy has lost momentum since the turn of the year. That points to weaker jobs growth in the months ahead.

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Shocking fall in the U.S. and the U.K. Manufacturing PMI, France and Italy increase the pressure on Germany to defend the euro, U.S. Treasury Secretary Geithner backs action from EU leaders, markets eye the upcoming Federal Open Markets Committee and the European Central Bank decisions…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: UK manufacturing shrinks at fastest rate in three years” was written by Dan Milmo and Nick Fletcher, for guardian.co.uk on Wednesday 1st August 2012 06.57 UTC

3.21pm:

The weaker than expected US manufacturing data will probably not be enough to push the US Federal Reserve into further quantitative easing just yet, said James Knightley at ING:

This is the second consecutive sub-50 reading for the ISM, something that hasn’t happened since the economy was emerging from recession in the first half of 2009. It is important to remember that although 50 is the break even level for the ISM index, a figure in excess of 42.6 generally indicates an expansion of the US economy. Indeed, the current level of the ISM is historically consistent with US GDP growth of around 1%.

The detail shows modest increases in production and new order indices (although the latter is still contracting) while employment dropped to 52.0 from 56.6 and the export index continues to drop sharply.

Together with the reasonably ADP employment figure, released earlier, it still seems consistent with the Federal Reserve being on hold today, but the general weakness prompting another round of QE at the September FOMC meeting.

3.04pm:

US manufacturing disappoints with flat reading in July

US manufacturing was flat in July, disappointing hopes of an increased. According to the Institute for Supply Management, the PMI index has come in at 49.8, compared to 49.7 in June and forecasts of 50.2. This is the second month in a row the manufacturing sector has shrunk (a reading below 50 indicates contraction).

So it’s a full house for disappointing data – China, UK, eurozone, and now, US.

2.45pm:

Italian prime minister Mario Monti says that he and his Finnish counterpart Jyrki Katainen agreed on a dual approach to the crisis. More from Graeme at the press conference:

Monti said: “We must have relentless efforts on our respective homeworks, and at the same time there have to be european solutions

Asked what he hopes to hear from the European Central Bank tomorrow, he said:

“I believe the statement of the president of the ECB of last week was interesting, bold and appropriate, and I was in particular impressed by the clarity at which the president said excessive difference between interest rates undermine the transmission of monetary policy.”

In other words, a signal that Monti would very much welcome a new round of bond buying by the ECB tomorrow.

2.42pm:

After the US jobs numbers and ahead of the ISM manufacturing survey and the Fed, Wall Street has opened higher.

The Dow Jones Industrial Average is up 49 points ore 0.38% in early trading.

2.36pm:

Ahead of the US Federal Reserve meeting, there is some focus on today’s American data, with investors seeking clues as to what the Fed might do.

Private employers added 163,000 jobs in July, better than the 120,000 expected. Of course the jobs figure that really moves the markets is the non-farm payrolls on Friday, where economists expect a 100,000 rise. But these have tended to surprise the market recently, so it’s all up for grabs.

The Fed will have an idea of the non-farms at its meeting today, and will take this into account when deciding whether to launch further quantitative easing or not.

The July manufacturing survey, due shortly, should also give some guidance to the Fed’s mood. Michael Hewson at CMC Markets said;

No action this evening seems most likely which will then push the speculation about further QE to Jackson Hole at the end of August, and then the September meeting, with careful scrutiny of each economic data point, as the “will they, won’t they” speculation continues right up to November election day.

2.18pm:

Thanks for your contributions today – particularly on house prices – and I will now hand over to my colleague Nick Fletcher. Cheers, Dan

2.14pm:

Shades of Merkel from Finland’s Katainen. Graeme tweets that the Finns, who have been vocal with their concerns about eurozone bailouts, want universal application of the rules. Take your medicine.

2.01pm:

Finnish and Italian leaders speak

Here is Graeme’s first posting from the Helsinki press conference:

The press conference between Finland’s prime minister Jyrki Katainen, and Italy’s Mario Monti, has begun.

Katainen begins by explaining that he has had an ‘extraordinary meeting’ with Monti, discussing how the two leaders’ citizens view the crisis (which he called the ‘mental view).

Katainen explains that many Finns are unhappy because they joined the eurozone because it has rules, only to find later that those rules were not followed by everyone.

He adds: “Some people in Finland have lost their jobs, not because of the situation in Finland, but because of the eurocrisis”.

Katainen adds that bond yields in some counries are too high
because markets have not given full recognition to the progress made already, or will be made in future.

1.57pm:

Over in Helsinki, prime ministers Matio Monti and Jyrki Katainen have
been discussing the crisis.

Graeme Wearden is there, and reports that the two leaders are just
finishing their coffee (not a bad lunch, then).

A press conference will kick off in a few minutes. It’s the most
beautiful setting I’ve been too, at Katainen’s summer residence, called Kesäranta – which overlooks a bay on the northwest of the City. Plenty of journalists crammed into a small marquee — whole thing feels a bit like a wedding…

1.54pm:

The UK manufacturing numbers have stuck a pin in hopes of a swift recovery from our double-dip recession and Next, the retailer, has also hinted that the Olympics won’t pull us out of a downturn either.

1.37pm:

Boss leader

A shout out to all Bruce Springsteen fans here from Australia’s treasurer and deputy prime minister, Wayne Swan. He has said that the Boss’s social conscience, and the music it has produced, has in turn inspired him in his battle against mining tycoons who oppose his tax reforms. Swan adds that he listens to “Born to Run” after delivering budget plans to parliament. Prime minister Julia Gillard is also a fan, he says.

In a speech today he says:

If I could distil the relevance of Bruce Springsteen’s music to Australia, it would be this: Don’t let what has happened to the American economy happen here. Don’t let Australia become a Down Under version of New Jersey, where the people and communities whose skills are no longer in demand get thrown on the scrap heap of life.

The Conservative opposition spokesman, Joe Hockey, is evidently a Phil Collins fan. Here is his response to Swan:

ridiculous

Any suggestions of Bruce Springsteen songs that George Osborne should be putting on his iPod?

1.28pm:

Chinese manufacturing slows

Outside of the eurozone, there are weak manufacturing numbers from China too. The state-affiliated China Federation of Logistics and Purchasing said its PMI fell to 50.1 in July, the slowest growth in eight months and just above the 50 level that signifies growth and general economic good vibes. Just.

1.11pm:

Doom with a view

Europe is suffering economic shockwaves but, as Graeme Wearden reports from Helsinki, discussions to counter them are taking place amid mill-pond calm…

1.00pm:

Some might argue that Nomura is understating things

12.49pm:

Will the Fed launch QE3 in the US this evening?

The US equivalent of our Monetary Policy Committee, the Federal Open Market Committee, is due to make its monthly policy statement this evening after European markets close. The Bank of England and European Central Bank will make statements tomorrow. The ongoing deterioration in the eurozone has given rise to hopes that the Federal Reserve will announce a third round of quantative easing – entering the bond markets to buy US central government bonds off financial institutions in the hope that they will plough the proceeds back into the US economy. But the view from the City today appears to be that the Fed will hold off for now.

Gavan Nolan, director of credit research at Markit, a financial data provider, writes:

It would be a surprise if the Fed decided to launch QE3 at this stage; further deterioration in key economic indicators is probably necessary before action is taken. But given the turmoil in the eurozone the Fed could make its language more dovish.

Deutsche Bank Securities, citing the thoughts of chief economist Peter Hooper, agrees that the Fed will keep its powder dry. Note the phrase “verbal easing”, meaning Fed hints that QE will come in September instead:

DB’s Peter Hooper thinks that whilst recent US data has been disappointing it is still mixed enough for the Fed to refrain from any major announcement today. Given that this meeting sees no press conference or forecast update, the September meeting would perhaps be the better place to announce any further easing (both verbal and quantitative) if labour and activity data in the coming weeks continues to disappoint. Peter thinks that if we do get some form of policy change today, verbal easing is the most likely option with the extension of their “low rates for longer” into at least 2015. On balance though it looks like the Fed is still in “wait-and-see” mode.

Analysts at RANsquawk agree with the above and warn of market disappointment. They add:

In terms of market reaction, if the Fed keeps their cautious approach there would likely be disappointment in the equity markets and spot Gold, with possible declines across various asset classes.

12.02pm:

Midday summary

Here’s a midday roundup on the news front:

UK downturn appears to worsen as manufacturing slumps in June

Eurozone manufacturing slumps too

US treasury secretary Tim Geithner urges Europe to act

House prices in sharpest fall since 2009

Bundesbank boss warns on enhanced powers for ECB

11.49am:

One siren voice – among many to consider – is that a Chinese slowdown could affect premium car exports. This is worth bearing in mind, because the likes of Bentley, Jaguar Land Rover and Mini are all based in the UK and are doing very well in China. This morning’s poor manufacturing numbers will inevitably trigger fears that car exports to emerging countries might wobble. However, BMW’s figures this morning provide an optimistic counterpoint. The German car maker’s finance boss says he sees Chinese sales growing by up to 25% this year.

11.43am:

ECB could be given power to close banks

Reuters is reporting that the European Central Bank’s banking watchdog could be given the power to shut down struggling banks. An unspecified “EU official” told Reuters that the plans involved giving the ECB the remit to police more than just the eurozone’s top 25 banks.

None of the problems we had in the past related to the top 25 banks. The scope should be all banks. The smaller the bank, the more decisions will take place at a local level.

The framework for a a beefed-up banking watchdog would be a key element of any move towards an EU or eurozone banking union.

11.29am:

Former Bundesbank boss warns on euro

Ian Traynor has sent us an update on the Bundesbank and the bank’s excellent idea of marking its 55th anniversary by issuing a spiky interview with its head, Jens Weidmann. His predecessor, Helmut Schlesinger, also chipped in and offered some sceptical observations on the euro’s longevity. Happy birthday.

Traynor writes:

Helmut Schlesinger, Buba chief at the time of the Maastricht Treaty in 1992 creating the euro, sheds some light on the twists and turns accompanying the single currency’s birth. He admits he was gobsmacked by the decision by political leaders to launch the currency in 1999 and sounds sceptical about its survival prospects.

“This was a clear defeat for us. There is no other way of putting it. We had assumed that the treaty would be concluded with a definition of the entry criteria, but without a fixed date being set…It is actually hard to envisage how a loss of monetary sovereignty could be achieved in the absence of a unified state.”

Schlesinger reminisces about the events leading up to Black Wednesday in September 1992 when Britain ignominiously fell out of the Exchange Rate Mechanism and George Soros made a killing by shortselling sterling. Schlesinger blames the politicians for sidelining the central bankers while acknowledging the inherent frictions deriving from German
tighter monetary policy – demanded by the impact of unification – being at total variance of the needs of other countries. Tempers frayed and Tory chancellor, Norman Lamont, personaly insisted that Schlesinger intervene to cut interest rates.

“The finance ministers seemed not to be listening. During the
decisive negotiations, the central bankers were seated at the
margins,” recalls Schlesinger. “Norman Lamont, the UK Chancellor of the Exchequer and chairman of the Ecofin Council, then tried to force Germany to lower its interest rates. He demanded that I personally – not the Central Bank Council – lower interest rates that following Monday. I then had to explain to him, first, that it was not possible, and second, we would not do that anyway.”

11.18am:

Nouriel Roubini, the US economist who saw all of this coming a while ago now (previous decade), says we need more quantative easing – where central banks buy up sovereign debt.

11.01am:

Greece talks “on a knife’s edge”

News in from Greece where our correspondent Helena Smith says marathon talks continue over efforts to find €11.5 bn (£9bn) in spending cuts – a condition of a further injection of EU-IMF rescue funds for the debt-crippled country. Another crunch meeting has been announced for 5pm (local time) between the three party heads participating in the governing coalition, led by the centre-right New Democracy party and prime minister Antonis Samaras.

Helena writes:

Coming up with an austerity package that will convince international creditors that Greece means business without offending a populace already reeling from cuts, has become a hire-wire act for the Greek government. As the authoritative Ta Nea newspaper put it this morning, the three leaders “have their backs against the wall.” Hand-wringing over the measures – which all agree are vital if the near-bankrupt country is to be kept afloat — reflects the huge sensitivity of inflicting yet more belt-tightening on a nation experiencing a fifth straight year of recession amid record levels of joblessness and poverty. “The three leaders will face a critical test of unity during their scheduled meeting this afternoon,” Ta Nea opined from its front page. “Important differences” between the prime minister’s office and the finance ministry and the two leftist parties supporting the conservative-led administration had surfaced, the paper said. The signs of discord were such that the fragile coalition’s “cohesion is hanging by a thread,” it reported.

She adds:

Greek coffers are drying up fast with the deputy finance ministry Christos Staikouras describing the situation as being “on a knife’s edge.”
But the government also knows that the backlash will be hard. The far-left main opposition Syriza party has issued an excoriating statement saying today that with its policies the coalition is “leading Greece back to the drachma and bankruptcy.”
Syriza added: “The three political leaders are trying to hide behind each other and altogether they are trying to hide from the Greek people. They have already agreed on the harsh new measures and are simply orchestrating how they will present them.”

10.48am:

Bundesbank risks row with ECB

Ian Traynor, our Europe editor, reports on a looming clash between the head of Germany’s Bundesbank, Jens Weidmann, and his European Central Bank counterpart, Mario Draghi. Weidmann has pushed the diplomatic boundaries in an interview this morning, Traynor writes:

Jens Weidmann, the head of the Bundesbank, has put himself on a collision course with ECB chief Mario Draghi ahead of tomorrow’s crucial ECB governing council meeting which has generated expecations that Draghi could unveil a massive intervention to slash Spanish and Italian borrowing costs.

In an interview issued by the Buba to mark the 55th anniversary of its founding today, Weidmann robustly has a go at the French, the British, the Americans, and indirectly at Draghi, while also oozing scepticism about plans for a new eurozone banking supervisory regime leading to a political union – policies publicly advocated by the German government.

The ECB’s independence means it has to “ respect and not overstep its own mandate…What is politically desirable and what is economically prudent have often not matched up. Whether we’re talking about interest rates or some sort of non-standard measures, in the end it always comes down to the central bank being instrumentalised for fiscal policy objectives. However, policymakers thereby overestimate the central bank’s possibilities and expect too much of it by assuming that it can be used not only for price stability, but also for promoting growth, reducing unemployment and stabilising the banking system. This pattern occurs again and again; this time it is perhaps even more pronounced than in the past.”

Weidmann last week took issue with Draghi’s statement in London that the ECB would do anything to save the euro and the two men are to meet tomorrow for what the Frankfurter Allgemeine Zeitung describes as “an exchange of ideas over a cup of coffee.”
Weidmann says that “some” in the UK and the US have been urging a more relaxed attitude to inflation in Germany to help the eurozone’s weakest. “Germany does not have to accept inflation rates which broadly unmoor inflation expectations,” he declares. Similarly, arguments about
weakening German competitiveness to help others are “absurd.”

Weidmann points out that Paris and Berlin have always taken
strikingly different positions on the roles of central banks,
stressing that the culture clash is as strong today as ever it was. “Two very different world views were colliding. They have continued to do so in all political debates – essentially, up to the present day.”

That would suggest little meeting of minds on the way ahead which is supposed to entail greater centralised eurozone control of fiscal and economic policy in return for mutualisation of eurozone liabilities. Weidmann sounds very sceptical.

“Seeing how reluctant some countries are to relinquish their fiscal policy autonomy – even in return for financial assistance – it is hard to imagine political union being achieved in the foreseeable future.”

10.39am:

Weak economic data from the US: lending to small US businesses fell in June to the lowest level since last October, according to the Thomson Reuters/PayNet Small Business Lending Index, which fell to 98.5 compared with 103.8 the month before.

Paynet’s founder, Bill Phelan, said it pointed to an ongoing slowdown in the US economy, whose annual growth rate of 1.5% in the second quarter was slower than in the first three months of 2012:

Small businesses really took a dive. What this means is, the slowdown is going to continue.

10.15am:

Car sales in southern Europe are a problem for automotive groups, particularly those that produce the smaller cars that sell well in that part of the continent. Here is an update on the Spanish market – doesn’t bode well for the Spanish economy, or any car makers with export links to the Eurozone’s fourth largest economy.

10.10am:

More economist reaction

More reaction on the UK manufacturing data for July, which showed a dire PMI of 45.4 compared with a downwardly revised 48.4 for June.

Ross Walker at Royal Bank of Scotland writes:

They are a shocking set of numbers. It’s a huge fall. We’d seen a more modest decline in the euro area flash [PMI estimate], but now we have a huge drop, which brings the [UK's level] more in line with the euro area.

Victoria Clarke at Investec writes:

We suspect that the Bank of England will not react directly. They will certainly be a bit spooked by these figures. But they knew that manufacturing was weak. They will look ahead now. We expect more QE [quantative easing] in November. We don’t think they will cut rates.

Jens Larsen at RBC senses chill winds from the global economy:

It is consistent with a very sharp slowing in the global economy. This is the most internationally exposed part of the UK economy and this is where you will first see a slowdown.

9.55am:

Finns on the defensive

My colleague Graeme Wearden is in Helsinki today, where Italian prime
minister Mario Monti is meeting Finnish counterpart Jyrki Katainen
today. A press conference is scheduled for 1.30pm BST (3.30pm local
time).

Graeme writes:

Morning all! Monti’s visit comes seven years after Silvio Berlusconi outraged Finland by complaining about the food. His derogatory comments about smoked reindeer (not as nice as Parma ham, apparently) and a cheap crack about smoked herring caused a diplomatic incident in June 2005.

Berlusconi’s gaffe was quite upsetting for a country that cares deeply about what others think of it, according to Professor Vesa Puttonen of the Aalto University School of Economics.

“It was not diplomatic, but perhaps there was much truth in what he said. It really hit Finns … now we are wondering what Monti will say.”

Professor Puttonon believes Monti will use his visit to reassure Finland that Italy is making economic reforms. The visit comes as Finland still basks in the pride of being the only eurozone member which Moody’s gives a AAA credit rating with a stable outlook.

The Italian PM has set the scene for his meeting with Katainen by giving an interview to the Helsingin Sanomat newspaper, and warned Italy may need a “breathing break” from its current high borrowing costs. That suggests he’ll push the Finns to support any new measures taken by the European Central Bank when it meets tomorrow.

Monti insisted, though, that Italy will not require a rescue package.
That may not be enough to persuade the Finns, as some of the people I’ve met in Helsinki fear that both Spain and Italy will soon need help.

9.54am:

Economist reaction

ING’s James Knightley says the manufacturing PMI increases the pressure on the European Central Bank to do something, rather than the Bank of England – which is also meeting this week. ECB action will boost confidence, he adds:

We don’t think it really alters the outlook for tomorrow’s Bank of England policy meeting. They only just announced another round of quantitative easing while the long heralded Funding for Lending Scheme (FLS) only starts today. This has the potential to increase both the amount of lending going on in the UK while also lowering the cost of borrowing for households and small businesses by making it more profitable for the banks through its structure. Consequently, the BoE believe it to be a more effective policy action than another rate cut, which has its draw backs. With confidence being a major drag on activity, action from the ECB tomorrow would be far more effective than anything extra the Bank of England can come up with.

9.50am:

Twitter reaction

Some twitter reaction to the manufacturing PMIs, from the Telegraph’s Jeremy Warner and Duncan Weldon at the TUC. As the latter says, we shouldn’t put this down to monarchs and meteorology.

9.39am:

Here is the market reaction to the manufacturing numbers from my colleague Nick Fletcher, our markets expert. He writes:

The FTSE 100 lost much of its gains following the UK manufacturing data. The leading index was up around 25 points before the figures, but fell back to a 13.65 gain to 5648.93 as traders absorbed the surprise decline. The pound fell to a session low against the dollar of $1.5652 from $1.5680 beforehand, and the euro rose from 78.6p to 78.65p.

9.35am:

UK manufacturing slumps

Following on from the Eurozone numbers, the July manufacturing figures for the UK are out and they are poor, at 45.4 for July compared with 48.4 in June. The June number was revised down from 51.9, which had at least signified growth.

My colleague Josephine Moulds has sent us a first look. She writes:

The manufacturing sector shrank at its fastest rate in more than three
years in July, another dismal sign for the UK still languishing in a
double-dip recession.
The Markit/CIPS UK manufacturing PMI for July came in at 45.4, the
lowest reading since May 2009. That is much lower than expectations of
a reading of 48.6 and last month’s reading of 48.4. Any number below
50 signals a contraction in the manufacturing sector.
The PMI summarises the opinions of purchasing managers, who are tasked
with gauging future demand, and adjusting orders for materials
accordingly. A dramatically lower PMI means orders for materials are
down significantly so the outlook for the economy is much worse than
previously feared.
The output index had an even bigger drop, down at 43.3, compared with
June’s reading of 51.9. The only glimmer of hope in the numbers came
from the employment index, which showed the first jobs growth since
April.

We’ll have analyst reaction on those disastrous numbers as it comes in.

9.15am:

Reaction to euro PMIs

Reaction to the European PMI data this morning from Howard Archer at IHS Global Insight. Worth noting his point on “relatively muted global growth”. If the UK and Europe are going to export themselves out of trouble, it requires a vibrant US, Brazil, China and India to buy what we’re making.

The July Eurozone manufacturing purchasing managers’ survey is hugely disappointing and suggests that the single currency area is headed for further marked GDP contraction in the third quarter after a highly probable drop in the second quarter (which we estimate to be around 0.3% quarter-on-quarter).

Eurozone manufacturers are clearly finding life extremely difficult amid very challenging conditions. Domestic demand is being handicapped by tighter fiscal policy in many Eurozone countries, limited consumer purchasing power, and rising unemployment. Reinforcing manufacturers’ problems relatively muted global growth is capping foreign demand for Eurozone goods.

Meanwhile, ongoing heightened problems in Greece, Spain and, to a lesser extent, Italy are magnifying the problems by weighing down on already weak and fragile business and consumer confidence and adding to uncertainty about the outlook. This is clearly resulting in some orders for the manufacturing sector being delayed or cancelled. At least though Eurozone manufacturers are being helped by reduced input prices and from the boost to their competitiveness coming from the weakened euro.

9.11am:

Good point from Sony Kapoor at financial thinktank Re-Define. If a PMI below 50 signifies contraction, we are far off even contemplating growth.

9.06am:

Eurozone manufacturing PMI has hit a 37-month low, reaching 44 for July, just undershooting estimates.

9.04am:

Here is an interesting chart, via a Markit tweet, of where European PMI is heading. It’s not quite the dog days of 2008, but it’s in the same direction.

9.00am:

Germany next and it’s not good. BMW posted decent figures this morning but its manufacturing peers are not doing so well. German manufacturing PMI is lower than expected at 43. Markit puts it in worrying context.

8.54am:

France’s manufacturing activity update deepens the gloom – it’s a 38-month low of 43.4.

8.53am:

Spain/Italy PMIs

The Spanish and Italian manufacturing activity numbers are out and, unsurprisingly, they remain poor. Remember that anything below 50 signifies economic contraction. Italian manufacturing activity contracted for the 12th month running in July, at 44.3, down from 44.6 in June. Spain’s figures showed a month-on-month improvement, but that is straw-clutching stuff. Its PMI was 42.3, compared with 41.1 in June.

8.42am:

Investors will be focusing on European manufacturing numbers this morning, in the wake of yesterday’s poor unemployment numbers, which showed that the number of jobless people across the eurozone rose by 123,000 in June, taking the total to 17.8 million.

According to Michael Hewson, senior market analyst at CMC Markets:

This time the data in question is the final manufacturing PMI data for July from across Europe, with all readings expected to come in below the 45 level. Spanish and Italian PMI are expected to come in the worst with the last reading of Spanish PMI coming in at 41.1 while Italian PMI is expected to slip further from 44.6 to 44.1.
French, German and Eurozone manufacturing PMI’s are expected to remain unchanged at 43.6, 43.3 and 44.1 respectively; highlighting perfectly the problems Europe is buckling under. No growth and rising unemployment are a toxic mix, which irrespective of what happens tomorrow at the ECB rate meeting is the key issue facing European leaders whether they want to admit it or not.

8.35am:

The FTSE has brushed off the house price data from Nationwide, which showed the biggest year-on-year drop in three years. In early trading it is up 25 points at 5660.58.

8.30am:

Ed Conway on house prices

Interesting from Sky’s Ed Conway on the Nationwide news. If you’re not Spanish, Dutch or American.

8.28am:

Market reaction

If Tim Geithner, the US treasury secretary, appears to lack optimism ahead of the ECB meeting, at least European investors seem more chipper. The FTSEurofirst 300 index of top European shares was up 0.2% at 1,065.85 points.

However, market watchers said Mario Draghi, the ECB president, needs to act decisively at the bank’s meeting this week. The wishlist includes restarting a bond buying programme in order to lower borrowing costs for the Spanish and Italian governments.

“Draghi’s credibility is really on the line this time, and the central bank has to come up with strong measures,” said David Thebault, head of quantitative sales trading, at Global Equities.

8.19am:

Today’s agenda

Coming up today we have:

• UK manufacturing PMI at 9.30am

• Mario Monti, the Italian prime minister, meets Finnish counterpart Jyrki Katainen

• Monti meets Spanish prime minister Mariano Rajoy in the early afternoon

• US manufacturing data at 3pm

•US Fed interest rates and quantitative easing announcement at 7.15pm UK time

8.09am:

Nationwide house prices

Outside the eurozone, in blighty to be precise, the outlook is no brighter. The Nationwide building society has reported that house prices have posted their biggest year-on-year decline in almost three years. A 2.6% drop has taken average prices to £164,389 in July, Nationwide said, with prices 13% below their 2007 peak. One consolation is that this fall is less than in the US and Spain, which have fallen by around a fifth since their pre-crash peak.

Robert Gardner, Nationwide’s chief economist, said: “UK house prices declined for the fourth time in five months in July, with prices falling by 0.7%. This pushed the annual pace of price growth down to minus 2.6%, from minus 1.5% in June – the weakest outturn since August 2009.”

Gardner said the summer soaking and the Queen’s Diamond Jubilee had played their part but could only partly explain the “disappointing performance” of the wider economy.

He said: “Against this difficult backdrop, it could be argued that UK house prices have shown resilience. While prices are currently 13% below their 2007 peak, this is less than the declines seen in a number of other economies that have experienced similar or more robust economic recoveries.”

7.56am:

Geithner’s call to action

Good morning and welcome to our rolling coverage of the eurozone crisis. Another busy day ahead with some events overnight to catch up on.

The US treasury secretary Tim Geithner has urged European leaders to do more to end the eurozone crisis after holding meetings this week with the German finance minister, Wolfgang Schaeuble and the president of the European Central Bank, Mario Draghi. In a highly prescriptive intervention, Geithner told Bloomberg TV that Europe had to take steps including “bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need.”

The treasury secretary was speaking ahead of an ECB meeting starting today that carries the latest hopes of politicians and investors for incisive action that will calm the markets. Those hopes had been raised by Draghi saying last week the ECB would do whatever it takes to save the euro.

“What you know, from what Europe has said, that they are committed to doing what’s necessary to hold the Europe Union together,” said Geithner. “I absolutely believe they have the means to do it.”

Geithner said past financial crisis showed that the longer it took to address the issues, the more they cost. “I believe they understand that. That’s why they’ve signalled they are prepared to move further. Now again, this is going to take time,” he added.

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GDP of the world’s largest economy grew at 1.5% between April and June, government figures show, compared to 2% in the previous three months, in a sign of a sluggish recovery as U.S. consumers spend less and the economy emerges as a key issue for the 2012 presidential election…



Powered by Guardian.co.ukThis article titled “US growth slows as consumers cut back on spending” was written by Dominic Rushe in New York, for guardian.co.uk on Friday 27th July 2012 13.27 UTC

The US economy slowed again during the second quarter of the year, government figures showed Friday.

The nation’s gross domestic product (GDP) – the broadest measure of the economy – grew at a sluggish 1.5% between April and June, the US commerce department said. The latest figure compares to 2% growth during the prior three months, and 4.1% in the fourth quarter of 2011.

The slowdown came as consumers cut back, local governments cut spending, factories received fewer orders and exports were hit by a global slowdown and a stronger dollar.

The latest news comes as the number of jobs created each month has also fallen sharply. The GDP figure is likely to be a blow to president Barack Obama as the economy emerges as the key issue of the 2012 election.

A Wall Street Journal/NBC News poll released this week found the economy was the only issue for which voters expressed more confidence in Mitt Romney, Obama’s Republican rival, than the president.

The GDP figure was slightly higher than many economists had predicted. Economists surveyed by Dow Jones Newswires had expected a rate of 1.3% in the second quarter.

Consumer spending slowed in the quarter. Personal consumption expenditures rose 1.5% during the quarter, down from a 2.4% in the first quarter and the smallest gain in a year.

Spending on durable goods – including cars and home appliances – fell 1.% in the second quarter.

Cuts in government spending, especially at the local level, also held back growth. State and local spending fell 2.1% during the quarter while federal spending declined 0.4%.

Non-residential fixed investment, including business spending on structures and equipment, increased 5.3% during the second quarter, down from 7.5% in the previous quarter.

The US economy has grown for 12 consecutive quarters, but the gains have been small.

“The current recovery has been utterly anaemic in relation to the average recovery in the post-war era. Real GDP is growing at a pace slower than virtually any recovery since the war,” Dan Greenhaus, chief global strategist at BTIG, said in a note to clients.

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Tepid economy adds just 80,000 new jobs in June, ‘Not surprised but disappointed’ is market reaction, Slowest quarterly job growth for two years, National jobless rate remains stuck at 8.2%, Spain borrowing costs back above 7% “breaking point”…



Powered by Guardian.co.ukThis article titled “Disappointment as US economy added 80,000 jobs in June – live coverage” was written by Richard Adams, for guardian.co.uk on Friday 6th July 2012 13.41 UTC

9.40am: The Dow Jones index falls by 100 points as soon as the stock market opens.

9.37am: One reason why the US labour market remains stuck in a ditch: the drag from continuing cuts in government and public sector employment.

Obviously the Republican party doesn’t agree.

9.35am: By the way, today is exactly four months until election day.

9.31am: Bloomberg News gets some market reaction – “not surprised but disappointed,” says one:

The job market is soft, as is the overall economy,” said David Resler, chief economic adviser at Nomura Securities International, who correctly forecast the jobs gain. “I’d characterize our reaction as much the same way the Fed will react – not surprised but disappointed. It’s just not the kind of growth we need to see at this stage in the business cycle.

9.24am: Mitt Romney is going to comment on the jobs report from a hardware store near his holiday home in Wolfeboro, New Hampshire, at 10am ET.

9.18am: Another sliver of better news in the jobs data: there was a drop in the number of “discouraged workers”, via the BLS:

Among the marginally attached, there were 821,000 discouraged workers in June, a decline of 161,000 from a year earlier. (These data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them.

9.15am: Now the BLS website has recovered, you can find the full jobs data here. Here’s an extract:

Professional and business services added 47,000 jobs in June, with temporary help services accounting for 25,000 of the increase. Employment also rose in management and technical consulting services (+9,000) and in computer systems design and related services (+7,000). Employment in professional and business services has grown by 1.5 million since its most recent low point in September 2009.

Employment in manufacturing continued to edge up in June (+11,000). Growth in the second quarter averaged 10,000 per month, compared with an average of 41,000 per month during the first quarter. In June, employment increased in motor vehicles and parts (+7,000) and in fabricated metal products (+5,000).

Employment continued to trend up in health care (+13,000) and wholesale
trade (+9,000) in June.

Employment in other major industries, including mining and logging, construction, retail trade, transportation and warehousing, financial activities, leisure and hospitality, and government, showed little or no change.

9.10am: Alongside the June jobs report this morning is the latest quarterly household employment survey from the Bureau of Labor Statistics – and that actually shows a much rosier picture of the US labour market.

According to the survey – which talks to actual people rather than employers – the economy added an average of 127,000 jobs a month, rather than the 75,000 recorded in the non-farm payrolls data. (There are various reasons for the difference.)

9.08am: Reaction to the jobs report is predictable along party lines, with Speaker of the House John Boehner saying this proves once again that the Obama administration’s economic policies have failed.

President Obama is out on his bus tour this morning and is expected to speak at 10.45am in Poland, Ohio.

9am: Wall Street has reacted by selling off futures on the Dow and buying US Treasuries, as you’d expect with weak numbers like this – although neither movement has been pronounced.

And for those who are wondering: there are four more jobs reports between now and the election on 6 November – including one on 2 November I suspect.

Meanwhile, the next scheduled meeting of the Federal reserves Open Markets committee – the one that sets monetary policy – starts on 31 July. It can of course act between meetings.

8.57am: The employment data also appears to have some grim news: the jobless rate among black Americans rose to 14.4% in June from 13.6% in May. Meanwhile, the unemployment rate was largely unchanged for whites at 7.4% and Hispanics at 11%.

8.53am: Could the latest employment data encourage the Federal Reserve to take further action to stimulate the economy? Possibly not – and that’s also possibly bad news for the Obama campaign.

Paradoxically, the 80,000 jobs growth in June may not be bad enough for the Fed to take action, given that it has already downgraded its economic forecast for 2012. It predicts growth of just 1.9% to 2.4% for the year and little change in the unemployment rate – and this jobs report may not be enough to shift its current stance.

8.45am: Delving deeper into the June jobs report – while the headline number of 80,000 is on the dismal side, some of the other data is more mixed.

For the April to June quarter in total, the US economy added just 75,000 jobs – far below the 226,000 a month added in the first quarter of the year. There were job losses in retailing, transportation and government sectors.

The good news was that average hours worked grew to 34.5 hours from 34.4 in May – suggesting that there was some higher demand in the pipeline. At the same time, average hourly wages rose six cents to $23.50. That means hourly pay has increased 2% in the last 12 months.

Meanwhile there were signs of improvement elsewhere. The manufacturing sector added 11,000 jobs, its ninth straight month of growth. The healthcare industry added 13,000 jobs, and banking and financial services added 5,000.

8.41am: Here’s the New York Times’s quick take on the June jobs report, describing the labour market as “tepid”:

The nation’s employers created more jobs in June, but not enough to significantly reduce the backlog of nearly 13 million unemployed workers.

The economy added 80,000 jobs last month, the Labor Department reported Friday, after a revised increase of 77,000 in May. The unemployment rate remained at 8.2%.

Economists are expecting similarly tepid job growth of around 130,000 a month — just enough to keep up with the growth in the working-age population — for the rest of the year.

8.35am: Initial reaction to the June jobs report: standing still rather than getting better or worse. While job growth is slow, job losses aren’t as big a factor than they have been.

But it’s not good news for the White House or the Obama campaign – and obviously better news for the Romney campaign, on the headline at least, being lower than expectations.

8.34am: There are also some backward revisions for April and May but they are basically a wash – a net loss of just 1,000 jobs so little change there.

8.31am: Breaking down the numbers – the private sector payrolls rose by 84,000 and the total non-farm payrolls rose by 80,000 – meaning that government job losses remain a small drag on the employment market.

Manufacturing created 11,000 jobs.

Obviously this is bad news for the Obama administration – that makes the second quarter of this year the weakest quarter in terms of jobs growth since the height of the recession.

8.30am: And here we go: the US economy added just 80,000 new jobs in June, and the unemployment rate stays unchanged at 8.2%.

8.18am: While we are waiting for the jobs report, here’s a 2006 clip of Mitt Romney talking about creating jobs as giovernor of Massachusetts.

In it, Romney says it’s “silly” to suggest job growth happened from the day he became governor. He doesn’t take that view these days.

8.12am: The New York Times’s statistical blogger Nate Silver has an interesting thought about how the expectations for today’s jobs report will affect the political climate. “It seems as though we’re at something of an inflection point in terms of the prevailing sentiment about the state of the race,” writes Silver:

If the economy is found to have added 150,000 to 200,000 jobs last month, you may begin to hear talk about how President Obama is on a winning streak. Nobody, I hope, will suggest that Mitt Romney faces insurmountable odds of winning the White House, but the notion that he is at least a moderate underdog may begin to sink in.

A downside miss, however, would mean that hardly any jobs were created in June. That would very probably shift the conversation away from the relatively favorable news stories, like the Supreme Court’s ruling on health care, that Mr. Obama has had over the past few weeks. The election might again come to be viewed as more of a tossup.

8.05am: So what can we expect from today’s jobs report? The latest microeconomic data hints June’s jobs total may be better than expected. Weekly unemployment benefit applications dropped by 14,000 to a seasonally-adjusted 374,000, the fewest since mid- May. And private sector payroll provider ADP said businesses added 176,000 jobs last month – an improvement on the revised 136,000 jobs it reported for May.

Goldman Sachs reacted to the latest data by sharply raising its forecast to a gain of 125,000 jobs for last month, well above its previous forecast of just 75,000. And a more recent CNN survey of economists put the addition at 90,000.

8am: Barack Obama and Mitt Romney will be anxiously awaiting the June jobs report unveiled this morning by the Bureau of Labor Statistics – and another pivotal moment in the 2012 US presidential election campaign.

With the BLS announcement set for 8.30am ET this morning, a survey of economists forecasts that 90,000 new jobs were added to the economy last month. That’s an improvement on the 73,000 added in each of April and May but well below the pace of growth set during the first quarter of the year, when 226,000 new jobs were added each month.

With the 2012 presidential election just four months away, time is running out for the Obama administration to convince voters that it is turning the economy around and making a dent in the 8.2% unemployment rate.

For Mitt Romney’s campaign, any figure below 100,000 bolsters its message that the Obama administration has failed, and that Romney’s successful business background makes him a better bet to put more Americans back to work.

While the Obama campaign has been chipping away at Romney’s business credentials as a corporate financier – labeling him a “pioneer of outsourcing,” as Obama did yesterday – another month of weak job growth puts it back on the defensive and vulnerable to GOP attacks on the White House’s record.

The latest labor market report comes as the Romney campaign has been suffering from stinging criticism of its strategy from Rupert Murdoch and the Wall Street Journal. Romney himself appeared uncertain how to respond to the supreme court’s dramatic decision last week to uphold Obama’s signature healthcare reforms.

We’ll be live-blogging all the latest reaction from economists on Wall Street and politicians in Washington once the numbers are made public.

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The Fed releases the Federal Open Markets Committee report and monetary policy decision. The U.S. central bank will buy another $267bn in longer-dated securities…

 


Powered by Guardian.co.ukThis article titled “Federal Reserve extends Operation Twist – as it happened” was written by Dominic Rushe, for guardian.co.uk on Wednesday 20th June 2012 19.09 UTC

12.30pm ET: The Fed is about to release the latest statement from the Federal Open Markets Committee (FOMC), which sets interest rates and makes decisions about the United States’ money supply.

There has been a lot for the committee to digest since their last statement in April when Fed chairman Ben Bernanke and his crew last outlined their views on the US economy. Europe’s economic woes have entered a darker phase, there are worries about Spain’s position in the union now that dwarf earlier concerns about Greece. Closer to home the recovery in the US jobs market has slowed dramatically.

None of this is good news and investors are betting the Fed will act. Earlier this month Bernanke told Congress: “The situation in Europe poses significant risks to the US financial system and economy and must be monitored closely.” He said there was scope for the Fed to act if necessary.

Most economists are betting on a plan called Operation Twist, which the Fed tried last summer. Operation Twist is a Fed bond-buying programme that aims to lower rates on mortgages and other loans and was first tried in the ’60s and named after the Chubby Checker song.

Wall Street expectations are high that the Fed will act, if it doesn’t then expect a sell-off.

“Come on let’s twist again like we did last summer. Yea, let’s twist again, twistin’ time is here,” as Chubby Checker put it.

 

12.42pm ET: As had been expected, the Fed has extended Operation Twist. The committee expressed heightened worried about the economy and said they were “prepared to take further action” if needed.

The committee “anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.”

So, pretty miserable then.

Eleven out of 12 Fed officials voted to keep the central bank’s easy-money policies in place. Short-term interest rates will be kept at “exceptionally low levels” at least through late 2014.

12.47pm ET: The Dow is now negative. But the real action is likely to come later after Bernanke gives his press conference at 2:15pm ET.

12.55pm ET: Oil prices are falling – crude oil futures are down 3.14% to .39 a barrel. That suggests traders are betting on lower demand for oil, as you would expect if the economy slows further. Better news at the pumps, worse news at the mall.

1.06pm ET: Gus Faucher, macro-economist at PNC Bank, gave a cautious welcome to the move, which was slightly larger than he’d been expecting.

“The last twist was about 0bn, and we were thinking this one would be about 0bn, so that [the 7bn announced by the Fed] is a plus. This will help to keep pressure on 10-year rates, and it shows the Fed is still on the case.”

Faucher said he was keen to hear more details on the plan and for Bernanke to give more details of what data in particular had let to the committee sounding more gloomy about the economy.

The initial selloff on Wall Street has reversed and the Dow is now up, slightly.

1.19pm ET: The Fed is a cautious beast, and the changes in its statement are so subtle they can be easy to miss.

The Wall Street Journal has done a great job of parsing FOMC statements past and present.

The key to today’s tonal shift is in the excising of “Labor market conditions have improved” from April’s statement to “growth in employment has slowed.”

The jobs market will recover “only slowly” to acceptable levels according to this month’s statement whereas in April it was “gradually” improving.

1.42pm ET: The FOMC’s comments on the job market are not surprising. Bernanke was the first to warn that this winter’s strong growth in the jobs market might be illusory – at it proved to be. So it will be interesting to hear what he has to say about the employment situation today.

The next set of jobs figures – the non-farm payroll numbers – are out on July 6. They have become a political football as we head into the election, so anything Bernanke says on the subject will be closely watched.

The other key issue for the US economy is the housing market. For some reason Bernanke rarely gets asked about it at the press conference, maybe those journos are all renters. Analysts had been expecting the Fed to say that the latest operation twist would buy mortgage backed securities – a move to keep mortgage rates down and perhaps even, gulp, encourage buyers. So far we have heard nothing about that, so expect questions.

1.52pm ET: Studies of the impact of the last Operation Twist suggest that it reduced the cost of borrowing only marginally, about 0.15% to 0.2%. And on top of that lenders are still fighting shy of making new loans after the credit crisis. If the Fed had not acted, the old Operation Twist would have expired next month. This extension suggests Helicopter Ben is still too worried about the recovery to let it go play on its own. So – and how depressing is this – Operation Twist isn’t so much a stimulus as a backstop to make sure things didn’t get worse. “Round and round and up and down we go again,” indeed.

2.12pm ET: This will be the last but one Bernanke press conference before the election in November. The next FOMC meeting is July 31-August ,1 but there is no presser after that and you’ll have to wait until September 13 to see Bernanke in action again.

With the economy the central battleground for Obama and Romney, anything Bernanke says can and will be used in evidence. Sadly for Romney in particular Bernanke has shown an amazing ability to survive even the most fractious questioning without passing on a single memorable phrase. No “irrational exuberance” for Ben.

He will be up momentarily. He’s probably in the back getting camera-ready, giving his beard a final trim. Want to make a bet on tie/shirt combo? I’m going for white shirt and green tie.

2.16pm ET: The Fed’s new projections are now out and they have downgraded their forecasts for growth and inflation over the next three years. The jobless rate is projected at 8% to 8.2% at the end of this year compared with the projection of 7.8% to 8% from the April forecast. That suggest the Fed is not expecting the monthly jobs numbers to rise dramatically any time soon.

2.17pm ET: Bernanke is in the house. White shirt and yellow tie – perhaps you could even call it gold. I lose.

2.20pm ET: He is reading the statement from earlier today. The Dow is flat at the moment at 12828.17, so let’s see what the stock markets make of his comments. The real meat will come in the Q&A.

2.25pm ET: So far the questions seem to be about Ben’s modesty. “Given this weaker outlook, why such a modest programme?” he is asked.

There’s been a lot of economic news since the last meeting, not least from Europe. “The step we took … is a substantive step,” he says. He says additional steps could be taken if necessary.

“Modest Ben” – I think that should be his new nickname.

2.29pm ET: Mitt Romney said QE2 had little effect on the economy, says a man whose name I missed but whose chubby cheeks and curly head of hair will live on in my mind. Not really, says Ben, refusing to get dragged into a political debate.

2.33pm ET: Now we are on to jobs. Given that today’s predictions see unemployment going on at these rates untill 2014, how long can this go on? Is it like the Great Depression?

“People are finding jobs, just not at the rate we would like to see,” says Bernanke. The Fed is prepared to do more if it thinks necessary. But those actions have consequences, and “I don’t think they should be launched lightly,” he says.

2.35pm ET: And now to the Euro-zone. What can/should the Fed be doing. “We try to provide any support and help we can,” says Ben. “We are prepared to work together if that can be done constructively.” But its for the Europeans to make their own moves, says Modest Ben.

2.39pm ET: And now the Fiscal Cliff. No easy questions for Ben. The Fiscal Cliff Cliff Notes: On December 31 the Bush era tax cuts will expire and massive spending cuts will be imposed unless the Dems and Republicans can reach an agreement. Odds on that before an election? Slim.

It’s not a can that can be kicked down the road, says Ben. Markets don’t like uncertainty “particularly uncertainty of this magnitude”.

2.47pm ET: You clearly seem to be waiting on the labour market. What exactly are you looking for? What’s the “gestalt” he’s asked. Nice word.

Sadly Ben isn’t going to give us a figure or his opinion of gestalt theory. “It’s not a month-to-month proposition,” he says. We’ve had good months (in the winter) and bad months (in the spring). “The question is is the improvement sustainable.”

2.55pm ET: The Twitter feedback seems to be: here’s a man who wants to do more. Here’s one from PIMCO, the world’s biggest bond investors.

2.58pm ET: Bernanke masterfully avoids mentioning the name JP Morgan while be asked about the Volcker rule. He is asked: should regulators move more quickly given what happened at JP Morgan? The “event you are referring to” he calls it, before offering: “It’s been a very difficult process with the amount of work that has to be done, the amount of coordination that has to be done.”

That’s a full sentence that means absolutely nothing. A genius at work.

3.01pm ET: Europe again. There have been rumors that the Fed could buy European countries’ debt. Are there any countries that the Fed would not buy? Nice try, but this is Ben. “The Federal Reserve isn’t going to be buying European sovereign debt.”

3.09pm ET: Bernanke has left the building. The Dow is down a bit but not much (0.53%) so it doesn’t look like Ben has scared the markets. Surprising really, given that the Fed is clearly more gloomy on the economy and hasn’t given them all that much more in the way of stimulus.

In summary:

• The jobs market is worse than we thought. Unemployment will be about 8%-8.2% at the end of the year, about what it is now. That’s bad news for Obama.

• Europe is a big worry.

• Washington needs to get its act together before we all plunge off the Fiscal Cliff.

• The Fed is ready to act should the situation deteriorate further.

• Once again nobody asked a good question about the housing market.

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Bernanke tells Congress that economic recovery remains fragile and warns that Europe’s woes pose significant risks to US…

 


Powered by Guardian.co.ukThis article titled “Ben Bernanke offers no sign of stimulus but says Fed will step in if needed” was written by Dominic Rushe in New York, for guardian.co.uk on Thursday 7th June 2012 18.42 UTC

Federal Reserve chairman Ben Bernanke on Thursday stopped short of signalling any new action to help the fragile US economy, saying the recovery was continuing but warning of potential pitfalls ahead.

“Economic growth appears poised to continue at a moderate pace of over coming quarters,” Bernanke told the congressional joint economic committee. He said the Fed “remains prepared to take action as needed to protect the US financial system and economy.”

Bernanke was speaking after disappointing news in the jobs market. Last week the labor bureau reported that the US added just 69,000 jobs in May as the unemployment rate rose to 8.2%, the first rise in nine months.

The news and continuing fears that Europe’s economic woes are dragging on the US economy have led to speculation that the Fed will step in with a third round of financial stimulus known as quantitative easing, especially after officials hinted more action was being considered.

Fed vice-chairwoman Janet Yellen said in a speech this week that “scope remains for the [Fed] to provide further policy accommodation”. Atlanta Fed president Dennis Lockhart said in a speech in Florida that he was “giving more weight and higher probability to a negative influence on our economy coming from Europe”.

But while Bernanke said all options were being considered, he stopped well short of making any similar comments. He said the Fed was studying the situation but still had to “make difficult assessments” at its June 19-20 meeting.

“The situation in Europe poses significant risks to the US financial system and economy and must be monitored closely,” Bernanke said in testimony. He said that European policymakers had made moves to address their issues but that more action was needed. Bernanke said Europe’s problems were far more likely to affect the US than slowing growth in China.

The Fed chairman also warned that political in-fighting over the so-called “fiscal cliff” could hurt the US recovery. Bush-era tax cuts are set to expire at the end of December as a raft of budget cuts drawn up as a compromise between Republicans and Democrats are also set to be imposed. The two sides are now at loggerheads about how best to manage the situation.

A severe tightening of fiscal policy at the beginning of next year would “pose a significant threat to the recovery. Moreover, uncertainty about the resolution of these fiscal issues could itself undermine business and household confidence,” said Bernanke.

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