DJ: US growth is modest, says Fed as it keeps stimulus in place

[a74henry]

Silver lining...no FED tapering for now.

[CityFarmer]

Last piece of data before policymakers meeting...

US retail sales ‘rose at faster pace last month’

WASHINGTON — Retail sales probably rose at a faster pace last month as Americans bought more cars and trucks, a sign that spending will help sustain economic growth in the second half of the year, economists said before a report this week.

Purchases climbed 0.4 per cent after a 0.2 per cent advance in July, according to the median forecast of economists surveyed by Bloomberg before Commerce Department figures on Friday. Other figures this week may show a pick-up in last month’s producer prices and little change in consumer optimism this month.

Industry data showing the strongest pace of vehicle sales since 2007 indicate job and wage gains, along with improvements in household wealth, are giving consumers the wherewithal to spend.

The retail report is one of the last pieces of data before next week’s Federal Reserve meeting as policymakers consider whether to dial back record monetary stimulus. Bloomberg

http://www.todayonline.com/business/us-r...last-month

[felixleong]

Sti rallys 1.5%, monday greens

[CityFarmer]

The answer will be disclosed in this week...

US tapering, if delayed, may boost S’pore markets

SINGAPORE — All eyes will be on the United States Federal Reserve this week to see what it announces about moves to begin the tapering of the stimulus measures that were introduced to support the world’s biggest economy during the global financial crisis.

Until recently, it had been seen as a near inevitability that the Fed would announce plans to begin tapering. But weaker-than-expected jobs data earlier this month suggested that the US economy might not be as healthy as had been thought, creating the possibility that Fed Chairman Ben Bernanke may want to keep the bond buying life-support machine going for a while longer.

If that happens, Singapore investors may see some gains this week, according to analysts.

“If the tapering is delayed, it is likely that we will see some limited knee-jerk reactions in terms of a short-term rebound across emerging markets, ours included,” CMC Markets analyst Desmond Chua said. “In this case, we might even see the Straits Times Index (STI) rallying to hit the 3,200 level next week.”

The STI closed on Friday at 3120.3 points.
...
http://www.todayonline.com/business/us-t...re-markets

[DP28]

Ignore the feds, as for now.. We celebrate LKY 90th Birthday.. Market driven by statesman.

[chialc]

Let's celebrate!
[Image: fulushou-words.jpg]

[Boon]

This week the US Federal Reserve is likely to slow the pace of easy money, but Paul Krugman argues it's too early for the central bank to take its foot off the accelerator

Taper: please don't do it

September 16, 2013

Paul Krugman

This week the Federal Reserve’s Open Market Committee — the group of men and women who set US monetary policy — will be holding its sixth meeting of 2013.

Don’t tighten until you can see the whites of inflation’s eyes. Give jobs a chance.

At the meeting’s end, the committee is widely expected to announce the so-called “taper” — a slowing of the pace at which it buys long-term assets.

Memo to the Fed: Please don’t do it. True, the arguments for a taper are neither crazy nor stupid, which makes them unusual for current US policy debate. But if you think about the balance of risks, this is a bad time to be doing anything that looks like a tightening of monetary policy.

OK, what are we talking about here? In normal times, the Fed tries to guide the economy by buying and selling short-term US debt, which effectively lets it control short-term interest rates.

Since 2008, however, short-term rates have been near zero, which means that they can’t go lower (since people would just hoard cash instead). Yet the economy has remained weak, so the Fed has tried to gain traction through unconventional measures — mainly by buying longer-term bonds, both US government debt and bonds issued by federally sponsored home-lending agencies.

Now the Fed is talking about slowing the pace of these purchases, bringing them to a complete halt by sometime next year. Why?

One answer is the belief that these purchases — especially purchases of government debt — are, in the end, not very effective. There’s a fair bit of evidence in support of that belief, and for the view that the most effective thing the Fed can do is signal that it plans to keep short-term rates, which it really does control, low for a very long time.

Unfortunately, financial markets have clearly decided that the taper signals a general turn away from boosting the economy: expectations of future short-term rates have risen sharply since taper talk began, and so have crucial long-term rates, notably mortgage rates. In effect, by talking about tapering, the Fed has already tightened monetary policy quite a lot.

But is that such a bad thing? That’s where the second argument comes in: the suggestions that there really isn’t that much slack in the US economy, that we aren’t that far from full employment.

After all, the unemployment rate, which peaked at 10 per cent in late 2009, is now down to 7.3 per cent, and there are economists who believe that the US economy might begin to “overheat,” to show signs of accelerating inflation, at an unemployment rate as high as 6.5 per cent. Time for the Fed to take its foot off the gas pedal?

I’d say no, for a couple of reasons.

First, there’s less to that decline in unemployment than meets the eye. Unemployment hasn’t come down because a higher percentage of adults is employed; it’s come down almost entirely because a declining percentage of adults is participating in the labour force, either by working or by actively seeking work.

And at least some of the Americans who dropped out of the labour force after 2007 will come back in as the economy improves, which means that we have more ground to make up than that unemployment number suggests.

How misleading is the unemployment number? That’s a hard one, on which reasonable people disagree. The question the Fed should be asking is, what is the balance of risks?

Suppose, on one side, that the Fed were to hold off on tightening, then learn that the economy was closer to full employment than it thought. What would happen? Well, inflation would rise, although probably only modestly. Would that be such a bad thing?

Right now inflation is running below the Fed’s target of 2 per cent, and many serious economists — including, for example, the chief economist of the International Monetary Fund — have argued for a higher target, say 4 per cent. So the cost of tightening too late doesn’t look very high.

Suppose, on the other side, that the Fed were to tighten early, then learn that it had moved too soon. This could damage an already weak recovery, causing hundreds of billions if not trillions of dollars in economic damage, leaving hundreds of thousands if not millions of additional workers without jobs and inflicting long-term damage as more and more of the unemployed are perceived as unemployable.

The point is that while there is legitimate uncertainty about what the Fed should be doing, the costs of being too harsh vastly exceed the costs of being too lenient. To err is human; to err on the side of growth is wise.

I’d add that one of the prevailing economic policy sins of our time has been allowing hypothetical risks, like the fiscal crisis that never came, to trump concerns over economic damage happening in the here and now. I’d hate to see the Fed fall into that trap.

[/b]So my message is, don’t do it. Don’t taper, don’t tighten, until you can see the whites of inflation’s eyes. Give jobs a chance.

The New York Times

Read more: http://www.smh.com.au/business/world-bus...z2f3W5fhn3