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Janet Yellen: December rate hike a 'live possibility'
Fred Imbert | @foimbert
5 Hours AgoCNBC.com
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Federal Reserve Chair [url=http://www.cnbc.com/janet-yellen/]Janet Yellen said Wednesday that December would be a "live possibility" for a rate hike if the upcoming data are supportive.
"Now no decision has been made on that and, what it will depend on, is the [Federal Open Market Committee's] assessment at the time. That assessment will be informed by all of the data that we collect between now and then," she said, testifying before the House Financial Services Committee.
Yellen also said she and the committee expect the economy to grow "at a pace that's sufficient to generate further improvement in the labor market, and to return inflation to our 2 percent target."
"If the incoming information supports that expectation, then or statement indicates that December would be a live possibility," she said.
According to the CME Group, the probability of a Fed rate hike next month increased to about 60 percent after Yellen's testimony.
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Five years on, bank regulation still a work inprogress
Yellen also provided testimony on the health of U.S. banks, which has improved, but some problems still remain.
Testifying before the House Financial Services Committee, Yellen said capital at the eight biggest U.S. banks has nearly doubled and now sits at about $500 billion.
Regional banks are also well capitalized while community bank loan growth has picked up, she said.
Nevertheless, the country's biggest banks still have substantial compliance and risk-management issues, which have undermined the confidence in them, she said.
This has led the Fed to propose a reform designed to reduce the possibility of big bank failures, as well as to limit the systemic damage done from such failures, Yellen said.
The central unveiled its proposal on Friday and said that six of eight key U.S. banks would need to raise an additional $120 billion to meet the proposed requirements.
"By making the failure of even the largest banks more manageable, the proposed regulation will be another important step in solving the too-big-to-fail problem," said Fed Gov. Daniel Tarullo in a statement Friday.
— CNBC's Elizabeth Schulze and Jacob Pramuk contributed to this report.
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With a large increase in US non-farm payrolls by 271,000 in October, looks like the Fed may actually, finally, raise interest rates in December.
http://www.theguardian.com/business/2015...al-reserve
It has been a long wait. It also looks like a good chance that, in retrospect, it will be judged that the Fed and BOE waited too long, and as a result will need to raise further and faster next year than would otherwise be the case.
We have already seen some welcome volatility in markets in the second half of this year, particularly in emerging markets. It looks as if we are in for a bumpy ride, which will throw up some good opportunities.
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07-11-2015, 06:30 AM
(This post was last modified: 07-11-2015, 06:36 AM by greengiraffe.)
(07-11-2015, 05:58 AM)Dosser Wrote: With a large increase in US non-farm payrolls by 271,000 in October, looks like the Fed may actually, finally, raise interest rates in December.
http://www.theguardian.com/business/2015...al-reserve
It has been a long wait. It also looks like a good chance that, in retrospect, it will be judged that the Fed and BOE waited too long, and as a result will need to raise further and faster next year than would otherwise be the case.
We have already seen some welcome volatility in markets in the second half of this year, particularly in emerging markets. It looks as if we are in for a bumpy ride, which will throw up some good opportunities.
I personally think that the worst is behind us... mkts looked well ahead and that is probably the discounting mechanism at work. The beginning of a rate rise will remove a huge uncertainty on the global mkts.
Initial rate hikes should be viewed as positives as it basically indicates that those economies able to do so are experiencing their economies on the mend.
As for emerging mkts, their pace of recovery will be dependent on their own individual strengths.
I remain hard press to find good representatives on SGX to ride this patchy global recovery. Our neighbours are either under siege due to weak commodity prices or internal political turmoil. While our comrades are trying to engineer a soft landing, looking for a play amidst invisible hands requires a lot of skills and trust.
On a topdown basis, I personally think that the current phase of rate recovery will be limited to around 50% of the entire GFC rate cuts amongst most major global economies. US rates are likely to peak around 2.5% given the huge debt pile racked up by most central bankers in the $ printing process while battling with their usual aging problems and other geo-political issues.
Hence in the absence of fantastic growth oppotunities ie good growth stocks with decent valuations, one can be expected to stay focus on yield plays (getting a bit stale though) at the right prices.
GG
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Path has been cleared for Fed rate lift-off
Daniel Palmer
[Image: daniel_palmer.png]
North American correspondent
New York
[b]It’s been almost a decade since the US Federal Reserve last raised rates, but the release of a jobs report that defied even the most optimistic expectations has finally cleared the floor for takeoff.[/b]
Friday’s numbers showed US employers added 271,000 jobs in October, well ahead of the 180,000 forecast, and were strong enough that Pimco, the world’s biggest bond fund manager, now sees little chance local numbers could delay a December move.
“I think at this point now it would be hard for me to think of any plausible US data we could get that would dissuade them from hiking,” Pimco’s global strategic adviser Richard Clarida told Business Spectator in New York.
“I think the only thing now that could dissuade the Fed … would be some major geopolitical crack-up.”
For Clarida, that would likely require either a significant downswing in the fortunes of China’s economy, or perhaps a significant escalation of the military tensions in the Middle East.
The US central bank stepped up its hints of a rate rise almost two weeks ago when its policy update signposted a move at its “next meeting” for the first time since 1999.
Fed chair Janet Yellen then further alerted investors to brace for a December lift-off in comments to lawmakers in Washington DC last week that labelled it a “live possibility”.
“Chair Yellen was very specific in her testimony on Capitol Hill,” Clarida, a former assistant secretary of the Treasury in DC, noted.
“Even though she was testifying on financial regulation, during the Q&A she took that as an opportunity to discuss the December hike.
“She herself thinks the conditions have been met to justify hiking, namely the Fed expects inflation will rise to target.”
It is on this point where a largely agreeable Fed has been seen ill at ease, with some members publicly questioning the merits of the Phillips Curve — an economic theory championed by Yellen that suggests inflation will rise as the unemployment rate slides (The Fed is thrown a Phillip Curve ball, October 28).
In the US, that has not been the case through the recovery as a sharp drop in the jobless rate to 5 per cent has failed to coincide with inflationary pressure. That is until last Friday, when we finally witnessed a significant uptick in month-on-month hourly earnings of 0.4 per cent.
The detail was perhaps lost a little amid the stunning headline number, but Clarida considers the gain in earnings as a “key piece” in the rates puzzle.
“I think that’s been one of the factors that’s been holding the Fed back,” he said of modest wage growth.
“Given how low the unemployment rate is the Fed’s models are predicting we should be seeing more wage inflation than we actually are ... So with this print it’s going to strengthen the case of those like chair Yellen and vice-chair Fischer who believe that it’s reasonable to project that inflation is going to be rising.”
In the wake of the Fed meeting, the Yellen commentary and the jobs update, market pricing on a December hike has surged from a 30 per cent chance to a three-in-four prospect.
It leaves investors with less than six weeks to ascertain the potential market impact of the most talked about rate hike in history and how it may compare to past episodes.
Clarida suggests that provided the US central bank successfully delivers a message of a gradual rates trajectory, there may be little reason for worry.
“The Fed is doing everything it can to telegraph a hike in advance … so I would imagine that on the day of the Fed meeting those market probabilities are close enough that it’s not going to be a big surprise,” he advised.
“What’s much more important than the hike itself is the post-meeting press conference because that’s where Yellen can give her own take and guidance on the lift-off path.
“Our baseline case would be a hike in December, but they’ll articulate and reinforce the very shallow lift-off path.”
Indeed, it could be the Fed’s most “dovish hike” ever, but it also promises to be a significant step forward at the tail-end of a painfully slow seven-year recovery.
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Fed rise not enough to cool US equities, says Citi
DateNovember 9, 2015 - 7:06PM
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Mark Mulligan
Senior markets and economy writer
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On the charge: Even the start to Fed interest rate hikes won't be enough to cool US stocks. Photo: Getty Images
US shares have not peaked yet in their current cycle, according to Citigroup's chief US equity strategist, who argues that prices will continue to rise well after the Federal Reserve begins lifting interest rates, perhaps as early as next month.
Tobias Levkovich argues that the allure of the S&P 500 index won't start to dim until the Fed is "three or four" rate hikes into its tightening cycle, towards the end of next year.
This, combined with uncertainty around the US Presidential election and the impact on profit margins of built-up wage pressures, would be enough to put a cap on what has already been a six-and-a-half-year bull market.
Even then, he said, history had shown that stock markets don't peak until two years after the first increase of a monetary tightening cycle.
The benchmark index has more than tripled since March 2009, to just under 2099 now, with investors' search for yield, added to an investment boom in oil and gas, a housing market bounceback, technology-related productivity gains and a broader recovery underpinning companies' performance.
Mr Levkovich sees the index reaching 2200 by the end of this year and 2300 at the peak.
Next year
"Most of our data is still supportive of markets moving higher," he said during a lightning visit to Sydney on Monday.
"We actually expect the market to pull back a bit in the second half of next year."
He said although equity valuations, calculated according to seven metrics, are currently "above average, they're not crazily above average".
"I think it's fair to say the market isn't cheap, but I don't particularly like the words 'cheap' or 'expensive'," he said.
"Once you say something is 'cheap' or 'expensive', you open yourself up to confirmation bias.
"Anything you hear that confirms your view you'll accept readily; anything that is not consistent with your view, you'll try to reject," he said.
Mr Levkovich said current market exuberance was also justified by the availability and quality of credit to business.
This indicator pointed to capital expenditure and earnings growth for the next 12 months, he said, making stocks in capital goods, banks, equipment, and software particularly attractive at the moment.
By sector, Citi recommends an overweight position in financials, information technology, industrials and energy, and an underweight holding in consumer discretionary, consumer staples and health care.
Strong support
CMC chief market analyst Ric Spooner on Monday agreed that although Fed signalling created the "potential for a pause or pullback", the US stock market had proved "resilient in the face of mounting prospects for a Fed rate hike".
"Perhaps the major theme for US markets in recent weeks is that support for cyclical sectors like materials, info tech, consumer discretionary and industrials has strongly outweighed selling of defensive sectors like utilities," he said.
Citi, meanwhile, is sticking to its view that the long-awaited Fed lift-off will be in March, although it agrees recent data has strengthened the case for a December move.
In any case, says Mr Levkovich, the initial tightening moves shouldn't disrupt US equities too much.
"The first Fed rate hike is basically just the Fed firming or confirming the economy's sustainable economic development," he said.
"Once you get to the third or fourth rate hike, then you get a bit of pressure.
"That, we think, is more likely in late-2016," he said.
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It takes a long time to reach the "near term" stage. I am supporting the new rules, which wouldn't interfere the market, but make the bankers liable for their decision, even years after.
U.S. close to finalizing rules on banker bonus pay: OCC
NEW YORK - U.S. regulators are hoping to finalize rules for banker bonuses in the "near term," said Molly Scherf, deputy controller for large banks at the Office of the Comptroller of the Currency.
The rules are expected, among other things, to dictate when banks can take prior years' bonuses back from bankers, for example if the employee engaged in fraud.
Under the 2010 Dodd-Frank financial reform law, regulators such as the OCC must craft rules to ensure that banks' pay packages do not encourage reckless risk taking.
According to Davis Polk, as of Sept. 30, rulemakers had finalized 64 percent of required regulations under Dodd-Frank, and had proposed language for another 15 percent more. For about another 21 percent, rules had not been proposed. REUTERS
http://www.todayonline.com/business/us-c...us-pay-occ
“夏则资皮，冬则资纱，旱则资船，水则资车” - 范蠡
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Federal Reserve chief Janet Yellen weighs caution with US economy's need
[img=620x0]http://www.afr.com/content/dam/images/1/1/8/1/u/4/image.related.afrArticleLead.620x350.gl1gv7.png/1447796719722.jpg[/img]US Federal Reserve chair Janet Yellen, known for her caution and preparation, is weighing up the arguments for and against a rate rise on December 16. Andrew Harrer
[Image: 1435478719294.png]
by Karen Maley
Will the famously cautious Janet Yellen run the risk of raising interest rates next month?
That's the psychological imponderable for investors as they try to calculate the odds of the US Federal Reserve raising interest rates for the first time in almost a decade.
There are strong reasons to think the US central bank will lift rates at its December 15-16 meeting. In the first place, Fed chair Yellen would clearly like to raise interest rates above the near-zero level they've been at for the past seven years. And signs that the US jobs market is robust, which is helping boost wages, provides a handy justification for "lift-off".
On the other hand, Yellen is renowned for her caution – she arrives at airports hours before departure and prepares weeks in advance for speeches – and she could well decide the time is not yet ripe for a rate rise given increased signs of growing stress in US credit markets.
Difficult market conditions have forced lead bankers to postpone a sell-down of the $US5.5 billion ($7.7) billion in debt that was used to help fund Carlyle Group's takeover of the data storage business Veritas, Bloomberg reported.
Despite efforts to sweeten the terms of the deal, including offering yields of about 12 per cent to encourage investors to buy the junk-rated portion of the debt, investors appear to shy away from riskier corporate debt.
Yields on junk bonds have again pushed higher as investors fret about increasing their risk exposure at a time when global growth is slowing, and the Fed appears on the cusp of raising interest rates.
In a weekend interview, DoubleLine Capital's co-founder, Jeffrey Gundlach, argued that the Fed could decide not to raise rates next month given the rocky state of US credit markets.
The high-profile bond fund manager pointed to several signs that conditions are deteriorating: the S&P Leveraged Loan Index, which is at a four-year low, the SPDR Barclays High Yield Bond Exchange-Traded Fund which is "very near a four-year low", and the CRB Commodity Index which is at a 13-year low.
"Certainly, no-go is more likely than most people think. These markets are falling apart", he told Reuters.
Gundlach also pointed out any move by the Fed to raise rates is likely to coincide with a decision by the European Central Bank to boost its monetary stimulus.
"You also have the eurozone doubling down on stimulus. Fed raising rates? Really?" he queried.
But if Yellen does decide to take the safe option and keep rates on hold, she's likely to feel some pressure from other central bank chiefs.
In September, Reserve Bank of Australia governor Glenn Stevens urged Yellen to set aside fears of upsetting financial markets by raising rates. In a sign of frustration at the Fed's failure to tighten monetary policy earlier this year, Stevens said there would always be some reason to justify delaying a move.
"One day you are just going to have to do it," Stevens told the House of Representatives economics committee, adding that raising rates would be in America's best interests. "They need to [go up] for the US's sake".
Stevens said while it was right for the Fed to be conscious of its impact globally it should get started with what had been a well-telegraphed move.
"It is a better thing, really, if the Fed can get the lift-off achieved," he said, noting the move was more a question of "easing off the gas a little bit" rather than "jumping to the brake."
Stevens' advice was seconded by Raghuram Rajan, head of the Reserve Bank of India, who has urged the US to push ahead with a rate rise, regardless of any jolt this may give to markets.
Earlier this month, Rajan warned aggressive monetary stimulus "eventually may have tremendous consequences for financial stability".
Although a US December rate increase could upset markets, it was nonetheless necessary, he said.
"The lift-off has been one of the most widely advertised factors," he said. "I think there will be volatility but I think we have to bear it. I worry more about the consequences of staying in the ultra accommodative … world," he said.
The president of Germany's Bundesbank, Jens Weidmann, who was speaking at the same event as Rajan, agreed.
"I share the concerns regarding monetary policy that is too loose for too long", he said.
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wall st climbed after Fed mins confirming rate hike is onlikely +0.25%, DJIA + 248... : http://www.cnbc.com/2015/11/18/fed-to-markets-rate-hike-coming-your-way.html
CNBC
Fed to markets: Rate hike coming your way
Fed minutes reinforced what central bank officials have been saying over and over again: Interest rates are going up.
In its minutes, the Fed said, "Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market and inflation, these conditions could well be met by the time of the next meeting."
But it also added that the actual decision would depend on the implications in the economic data released between the October and December meetings. The Fed minutes noted that improvement in the labor market had slowed somewhat in recent months.
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Five reasons not to fear the Federal Reserve
DateNovember 20, 2015 - 12:33PM- 92 reading now
- Read later
[Image: 1426323565853.png]
Vanessa Desloires
Reporter
[Image: 1447983490073.jpg]
Fed chair Janet Yellen: the US Federal Reserve has good reasons to lift rates, AMP's Shane Oliver says. Photo: AP
An interest rate rise in the US, arguably the biggest market event of 2015, looks likely to happen next month but it's nothing to worry about, AMP Capital's Shane Oliver says.
The US Federal Reserve had good reasons to lift rates, Dr Oliver, the investment bank's head of investment strategy and chief economist said.
Jobs numbers are well up on 2008 and unemployment has fallen to 5 per cent. Confidence is up, the housing sector has recovered and business investment is picking up.
But investors have been fretting over the decision for months, with false starts in September and October, driven by fears of the effect of a stronger US dollar on commodity prices, emerging markets and US economic growth.
"It's understandable for investors to be wary as they have become used to zero interest rates, and the fragile state of US and global growth, along with deflationary risks, suggest that there is a risk that the Fed may make a mistake in hiking," he said.
The long list of countries that have raised rates and then eased since the global financial crisis include Australia, Canada, Norway and the euro zone.
On this, Dr Oliver said he expected market volatility to continue until the Fed meets on December 15. The October meeting minutes, released this week, all but confirmed the first hike would be in December, but the timing after that would be more gradual than the market was anticipating.
As the date nears and market jitters become more pronounced, Dr Oliver said there were at least five reasons not to worry:
1) The hike is conditional on improved data from the US
The Fed has clearly made its first interest rate hike conditional on the economy moving in line with its relatively upbeat expectations, which is why it delayed in September.
This means that if the Fed does hike in December, it will only be because the economy is stronger and the Fed is confident that this will continue – in other words it will be a "good hike".
And subsequent moves next year will also be conditional on further improvement in the US economy.
"Given ongoing constraints on growth and inflation I expect that rate hikes will be very gradual, ie below Fed members' expectations for the Fed Funds rate (commonly called the "dot plot") to reach 1.5 per cent by end 2016 and 2.6 per cent by end 2017," Dr Oliver said.
Citigroup's US economists agreed, tipping the path of rate rises would be slower than the Fed is currently indicating.
"We believe that the FOMC's [Federal Open Markets Committee] data-dependent policy has made it much more difficult to define "gradual" and credibly ensure its delivery," they said.
"We believe that the Fed's path of rate increases will begin in December, but will not reach above 2 per cent until 2018."
2) Historical rate rises have become a problem only when monetary policy becomes tight
Recessions and downturns have only come three years after the first rate hike, when rate hikes move from easy, to less easy, to tight.
"This is often signalled by long-term bond yields falling below short-term interest rates ... and we are a long way from that," Dr Oliver said.
3) Divergent monetary policies
Major central banks, including Australia, Europe, Japan and China are still entrenched in easing mode.
"Even when the Fed moves, global monetary policy will remain easy. This divergence is very different to the period prior to the GFC," Dr Oliver noted.
4) The US dollar will cap the Fed
The US dollar has risen 20 per cent on a trade-weighted basis against a basket of major currencies, pushed upwards by expectations of a rate rise.
The dollar strengthening is doing most of the Fed's job for it, as a stronger currency puts pressure on economic growth, by making the US less competitive globally, and inflation.
"According to a Fed model of the US economy the 20 per cent rise in the value of the US dollar since the start of last year is equivalent to around 150 basis points of rate hikes."
5) Shares are cheap (outside the US)
Unlike before the GFC, global shares are as cheap as they've ever been on a cyclically adjusted price-earnings multiple, a measure that compares share prices on a 10-year rolling average. US shares are at 26 times earnings, while the rest of the world, including Australia, is on 15 times.
"This tells us there are still plenty of opportunities in global shares for investors, even if Fed hikes continue to put a brake on US shares," Dr Oliver said.
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Divided world will keep fuelling US dollar's rally, says Pimco's Luke Spajic
DateNovember 24, 2015 - 6:23PM
[Image: 1444795415899.jpg]
Mark Mulligan
Senior markets and economy writer
[Image: 1448349795300.jpg]
The Aussie lost almost 1 per cent against the greenback on Monday, but has since crept back up. Photo: Glen Hunt
The US dollar rally still has a way to run, despite the currency having hit dizzying new heights this week, according to a senior portfolio manager at bond group Pimco.
Head of Asia emerging market portfolio management Dr Luke Spajic says the sharp divergence in monetary policy around the world means the greenback will continue to bounce back even if it stumbles from time to time.
With the European Central Bank expected to step up its quantitative easing program and half the developed and emerging world cutting interest rates, the US dollar will be even more attractive to investors once the US Federal Reserve starts lifting rates, he says.
Futures market pricing suggests a strong chance the Fed will start its long-awaited monetary tightening with a 25 basis point increase next month.
It would be the first hike in almost a decade, and comes as slow growth, soft commodity prices, ultra-low inflation and recession has most of the world loosening monetary policy or, as in Australia, on hold.
"The bottom line for us is that the dollar remains the currency of choice, because you do have this big divergence in monetary policy and one that hasn't been seen like this for a very long time," Dr Spajic said.
"You've got a situation where the dollar has rallied so hard and so fast for so long, that there may some profit taking.
"However, with the rest of the monetary easing that's going on around the globe and the Fed looking to hike into 2016, it's very likely to resume appreciating."
Dr Spajic's comments follow another surge in the US dollar this week, to multi-year highs against a range of currencies.
At one stage on Monday it climbed about 1 per cent against the Australian dollar, to leave the latter at a low of US71.59¢. The Aussie later recovered and on Tuesday had crept back up to about US72¢.
According to research from RBC Capital Markets, the Australian dollar is among the currencies with the most extreme responses to Fed monetary tightening, although the range of reactions over six Fed rate increases was wide.
Monday's sudden spike in the greenback puzzled a lot of currency strategists, who in the end put it down to further commodity weakness and a range of signals from the Fed that lift-off would happen during its Open Market Committee meetings in mid-December.
This is despite speculation that the strength of the greenback, which is disinflationary and also hurts the US dollar profits of companies with large foreign operations, could force the Fed to hold off for a while.
However, Dr Spajik said this was unlikely.
"The Fed has been at the floor for so many years, that just pushing through one 25 basis point hike in December shouldn't hurt the markets," Dr Spajic said.
"In fact, it's well-priced in now, very well-anticipated.
"Get December out of the way with a hike, then let's see what the data and markets look like going through to March.
"If US and global growth are heading in the right direction, with no major reversals in risk taking, and there are no signs of inflation, it makes it easier for the Fed to say, 'let's hike another 25 basis points and we'll see how the dollar stands'.
"If the dollar's move is benign, they can go again."
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