US Economic News

[BlueKelah]

So we can expect markets to retreat downwards after October as it has always done after QE1, QE2 and now QE3..... then FED will be forced to have a QE4 after which US economy may really 4......

[CityFarmer]

Let's hear from Janet Yellen, on the "normalization" detail next week...

Charting a path to 'normalization'

BRUSSELS - Investors shift focus this coming week from trouble spots such as Portugal's biggest listed bank to a marathon testimony by the U.S. Fed chair that could help chart a global path towards post-crisis "normalization".

Concerns about losses associated with the founding family of Banco Espirito Santo had threatened to rattle euro zone markets, but by Friday traders had decided that BES was unlikely to disrupt Portugal's financial system or revive broader worries about the bloc's weaker economies.

In any case, Janet Yellen's two-day appearance in the U.S. Congress from Tuesday will dominate global markets, which want above all to know how long the Federal Reserve will leave interest rates low after an unprecedented period of cheap money since the financial crisis.

While October is likely to mark the end of the central bank's money printing, investors are looking for hints of an interest rate hike early next year, which would signal a return to normality after the Great Recession and its aftermath.
...
http://www.todayonline.com/business/char...malization

[theasiareport]

One cannot help but feel that we have been fighting the last great war for years now. But its been 5 years since the aftermath of the GFC, and the world is in a much different place.

We are in a much better position IMHO with politicians constantly worried about impending bubbles and risks.

[greengiraffe]

Yellen says US recovery 'not complete'
DOW JONES NEWSWIRES JULY 16, 2014 1:30AM

Federal Reserve Chairwoman Janet Yellen has signalled continued low interest rates in her semiannual report to Congress, noting that the US economic recovery is "not yet complete" and too many Americans remain unemployed.

"A high degree of monetary policy accommodation remains appropriate," Ms Yellen said in a statement prepared for her testimony to the Senate Banking Committee, the first of two days of congressional hearings on the economy and monetary policy.

Ms Yellen's comments come after a run of strong US jobs data. US payroll employment gains averaged 230,000 a month during the first six months of the year and the unemployment rate has fallen to 6.1 per cent in June from 6.7 per cent in March. The last major jobs report, which was released by the Labor Department after the Fed's June policy meeting, showed outsized gains in hiring last month and continued decline in the jobless rate.

"Broader measures of labor utilisation have also registered notable improvements," Ms Yellen said.

However, she responded cautiously to these encouraging developments, pointing to low levels of labour-force participation and slow wage growth as signs of continued "significant slack" in the job market.

With the job market improving, the Fed is winding down monthly purchases of mortgage and Treasury bonds, a process officials expect to complete by October. Some regional Fed bank presidents have argued of late that the central bank needs to start turning its eyes toward raising short-term interest rates as the job market improves.

Ms Yellen gave no indication that she is yet seriously considering any move in rates.

"Too many Americans remain unemployed," Ms Yellen said. "Inflation remains below our longer-run objective."

The Fed chief added during questioning that the timing for the first rate hike remained up in the air.

"There is no mechanical formula," she told lawmakers.

Most Fed officials see rates beginning to rise sometime next year, Ms Yellen added.

In all, Ms Yellen's review of the economy was carefully hedged at almost every turn. While a number of recent indicators point to a rebound in economic growth after the first quarter, housing has shown little progress and the broader recovery "bears close watching," she said.

"Although the economy continues to improve, the recovery is not yet complete," she added. Moreover while inflation has moved up, she said officials expected it to remain below the Fed's 2 per cent goal for the year as a whole.

Her review of financial conditions expressed some worry about the impact of continued low rates on markets, but again concluded with comfort about keeping rates low.

"The [Fed] recognises that low interest rates may provide incentives for some investors to 'reach for yield,' and those actions could increase vulnerabilities in the financial system to adverse events," she said. One worry: Issuance of junk bonds has been brisk and "valuations appear stretched." The Fed is also working to toughen supervision of leveraged-loan issuance.

But Ms Yellen said the financial sector more broadly has become more resilient because banks have added capital and improved their liquidity positions.

[greengiraffe]

http://www.cnbc.com/id/101836922

Fed, in monetary policy report, says valuations stretched for smaller social media & biotech stocks
Jeff Cox | @JeffCoxCNBCcom
5 Hours Ago
CNBC.com
224
COMMENTSJoin the Discussion

Fed Chair Janet Yellen gave a tepid thumbs-up Tuesday to the economic recovery while expressing disappointment in housing and pledging to remain vigilant over asset bubbles.

While Yellen's remarks to a Senate committee were mostly benign and cautious on the economy, a separate Federal Reserve report indicated concern over asset prices.

"Valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year," remarks in the full policy report accompanying her testimony said.

The comments gave the market some pause, sending shares in Yelp, for instance, down more than 4 percent and all of the major indexes into negative territory. Broadly speaking, social media and biotech stocks led decliners on the Nasdaq, which was off more than 1 percent before recovering some of the losses.

More broadly, though, Yellen, while noting dangers of "a reach for yield" among investors that was keeping volatility low, said asset prices "remain generally in line with historical norms."

The Fed chair gave no specific indications as to when the central bank will begin raising interest rates other than probably in 2015, and broke from previous unemployment and inflation targets for when a rate might be considered.

"There's no formula and there's no mechanical answer that I can give you about when the first rate increase will occur," she said during the question-and-answer portion of her testimony before the Senate Banking Committee. "It will depend on the progress of our economy and how we assess it based on a variety of indicators."

Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014 in Washington.
Getty Images
Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014 in Washington.
Several senators questioned Yellen over the potential of speculation and creation of asset bubbles created by Fed policy. She generally has dismissed charges that the Fed has caused dangers but did acknowledge the potential.

"When interest rates begin to rise, if firms or individuals have taken risks and aren't adequately prepared to deal with them that can cause distress," she said. "Among the institutions that we supervise we're certainly looking at management of interest rate risk."

In her initial remarks during semi-annual testimony to Congress, Yellen said there were signs of a production and spending rebound in the second quarter, but "this bears close watching."

Yellen also noted that housing activity has been disappointing, with the sector showing "little progress" of late with readings this year "disappointing" as mortgage rates have edged higher.

The remarks were part of what once was known as the "Humphrey Hakwins" testimony in which the central bank chief apprises lawmakers of the state of policy and the U.S. economy. Yellen's testimony came as the Fed looks to end its monthly bond-buying program—currently at $35 billion—and contemplates when to begin raising short-term interest rates from near-zero levels.

Some of the questioning got a bit more granular, though. Sen. Elizabeth Warren, D-Mass., questioned Yellen on whether large financial institutions remained a threat the economy. She pointed out that JPMorgan Chase, for instance, has 3,391 subsidiaries—more than three times the number of Lehman Brothers when it failed in 2008 and triggered the worst of the financial crisis.

For the most part, though, the exchanges were cordial, with Yellen straddling the line between expressing confidence in the recovery and caution that the central bank's job is not finished.

Read MoreLooks like the Fed wants to have even more power
"The economy is continuing to make progress toward the Federal Reserve's objectives of maximum employment and price stability," Yellen said.
She cautioned, though, that it's important for policymakers not to get overly optimistic about the pace of recovery, indicating continued concern over whether the economy is ready to stand on its own.

"We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates," Yellen said during questioning. "I think the forward guidance that we have provided in the policies that we have put in place are providing a great deal of accommodation to the economy to make sure that it is on a solid trajectory."


Though the economy slumped 2.9 percent in the first quarter, Yellen continued to insist that factors contributing to the decline in gross domestic product were an aberration unlikely to be repeated.

"The decline appears to have resulted mostly from transitory factors, and a number of recent indicators of production and spending suggest that growth rebounded in the second quarter, but this bears close watching," she said.
Economic activity probably will grow at "a moderate pace over the next several years"—a comment that would help the Fed justify its extreme monetary accommodation even though the financial crisis-inspired recession ended five years ago and the stock market, as measured by the S&P 500 index, has gained 197 percent since its March 2009 low.

Read MoreWage inflation is a good thing: Pimco's McCulley
Other gauges on economic strength have not been as positive. Unemployment is at 6.1 percent, but job creation has been titled toward part-time positions and long-term employment remains a challenge. Wages have stagnated even as energy and food costs have escalated significantly.

Still, the jobless rate already has hit the Fed's estimate for the year and is well below the original 6.5 percent target it had set before considering a rate hike. Inflation, as measured through the personal consumption expenditures index, remains below the Fed's target.

—By CNBC's Jeff Cox

[theasiareport]

Interesting comments from Yellen. A sign to a more proactive Fed?

Valuations of US equities:

The US Federal Reserve unusually raised concerns of stretched valuations in some of the US-based companies. These include the smallcap, biotechnology and social media sectors.

Yellen said in remarks to the Senate Banking Committee that valuations across equity markets remain generally in line with long-term averages, but the Fed's report said the forward price-to-earnings multiples for smaller companies and those in the biotechnology ..

http://economictimes.indiatimes.com/

Cheers,
theasiareport.com

[greengiraffe]

http://www.cnbc.com/id/101872957

Why the Fed could start raising rates sooner than you think
Patti Domm | @pattidomm
2 Hours Ago
CNBC.com

Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014, in Washington.
Getty Images
Federal Reserve Board Chairwoman Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014, in Washington.
An improving economy could force the Fed to shift into rate hiking gear sooner than it would like, some Fed watchers say.

While a move to higher rates sooner is not a majority view, it is one that has been picking up momentum. Others see the Fed holding off on rate hikes until late next year, but then hiking much more aggressively than expected.

The Fed meets for two days, starting Tuesday, and is widely expected to taper back its monthly bond buying program by another $10 billion to $25 billion—and do little else.

"They've got to decide how they're going to raise rates, when they raise rates. That's what the bulk of their talk has to be about. The minutes are going to be revealing, more and more. They've got to hash this out," said Mesirow Financial chief economist Diane Swonk. Raising interest on excess reserves and reverse repos are tools that are likely to be used by the Fed. "Bottom line, if the economy is good enough, they'll raise rates."


While the Fed is not likely to reveal any more about the timing of rate hikes or how it will unwind its more than $4 trillion balance, Fed officials are likely to discuss those topics at this week 's meeting. After this week, it next meets Sept. 16.

Traders are watching for clues on Fed timing in its statement, particularly around the Fed's dual mandates of helping employment and fighting inflation. It last said unemployment "remains elevated," and described inflation as running below its objective of 2 percent.

Read MoreFed up? Janet Yellen facing challenges from within

The Fed has said it would end the bond buying program in October, so it is likely the talk will turn to post-tapering actions, like when the Fed could end its policy of reinvesting the proceeds as the securities within its portfolio mature.
Read MoreSummer's busiest week for markets is here

Economists expect the Fed's more hawkish members to ramp up their calls for ending easy policy, if economic data improves. Friday's July employment report is expected to be an important metric for the Fed, as is the personal consumption expenditures (PCE) inflation reading, due the same day.
"Knowing (Fed Chair) Janet Yellen, she'll wait until March, but I think pressure is really growing to do something in January. Whereas the market doesn't think this happens until the middle of next year, and all the economists at the big firms don't think it's happening until the third quarter," said Peter Boockvar, chief market analyst at the Lindsey Group.
Read MoreOpinion: Fed officials in denial

Already a hawkish corner of the Fed is seeking an earlier move to "normalize" policy. St. Louis Fed President James Bullard predicts the Fed could start raising rates in the first quarter of 2015, well ahead of most of his colleagues. And in an unusual and high profile commentary just ahead of the Fed meeting, Dallas Fed President Richard Fisher wrote in The Wall Street Journal this weekend that the Fed is risking keeping policy "too loose, too long."

Taken from a speech earlier in the month, Fisher made the point that the Fed is creating financial excess that could lead to financial instability. He also said the economy is reaching "the desired destination faster than we imagined."

"Maybe it's his way of saying he's going to dissent," said Boockvar, adding he thought Fed officials would be in a quiet period ahead of the meeting.

Swonk said she expects the Fed to hold off rate hikes until the end of 2015, in part because there are no signs of wage pressure. Some parts of the economy appear to be improving but there are still signs of trouble in the detail.

For example, while hiring is improving and the unemployment rate is dropping, the participation rate, which measures people in the work force or who want to be in work force, is still at a post-recession low.

Read MoreWhy the Fed could matter more than jobs and earnings this week

That is also a metric that Yellen watches closely. "The hawks are going to start squawking a lot more this fall, and you will see defense about the repurchase program and timing on when the Fed raises rates," Swonk said.

"Next year, it's a much more dovish Fed," said Swonk, adding she expects Yellen and the dovish core of the Fed to prevail.

"We know the outcome of the Fed meeting. It's steady as she goes," Swonk said.
BlackRock's Rick Rieder, co-head of America's fixed income, has said the Fed may need to move sooner than many market watchers expect because low rates may actually be holding back economic growth and job creation.

UBS economist Drew Matus said the Fed should have begun to tighten policy a while ago, and while he doesn't expect it to move sooner, he does see it having to raise rates faster once it begins.

"By any measure, using the Fed's own forecasts for growth and inflation and unemployment and inflation, they are behind the curve, even as we speak," he said in an interview with CNBC's Steve Liesman. "So even though we are looking forward to a taper, and that's moving in the right direction, certain policy rules, like John Taylor ascribed to or created, really suggests the Fed should have gone a while ago."

Jefferies chief financial economist Ward McCarthy said he expects the Fed to actually move later than expected, because its policy moves have been very slow and cautious. But once they start hiking, he agrees with Matus that it will be more aggressive than expected.

As for this week's meeting: "One, they'll taper $10 billion. Two, I think in the balance sheet guidance they'll confirm from the discussion from the minutes…about making the last tapering in October, and I think in their discussion of the economy, they will be cautiously optimistic but still include the caveats about the housing sector and labor market slack," he said.

Besides the concerns the Fed has stayed easy for too long, there are the opposite fears that it is unwinding easing before the economy has picked up real traction, and that higher rates could harm critical parts of the economy, like housing.

The economy is still growing at a sluggish speed. That should show up Wednesday when second-quarter GDP is released, and economists are forecasting growth of just 2.9 percent. At that pace, it does not show much spring back from the 2.9 percent contraction in the first quarter.

Read MoreQ2 growth shrinking again

Fed watchers are looking as much to the data this week as the Fed statement for clues on its policy path. The July employment report on Friday, is expected to show the economy added more than 200,000 jobs for a sixth month, and the unemployment rate is expected to drop to 6 percent. The Fed has stepped back from its target of 6 percent unemployment as a pivot point for considering rate hikes, but the market remains fixated on the number.

Tuesday's data includes S&P/Case-Shiller home prices data at 9 a.m. ET, and consumer confidence at 10 a.m.

The Fed has a target of 6 to 6.1 unemployment for this year, and it sees it at 5.4 to 5.7 percent next year. It expects inflation next year of 1.5 to 2 percent. "They can meet their year-end 2015 targets by the end of this year," said Boockvar.

Boockvar said the soft demand at the $29 billion 2-year auction was symptomatic of the market's expectation that the Fed will be pushed to hike. The yield was 0.544 percent, the highest yield at auction since May 2011. Treasury auctions $35 billion in 5-year notes Tuesday.

"I just think the bond market is beginning to think the Fed is falling behind the curve…even though I hate that cliché," he said.

Besides the Fed and data, market focus will be on the dozen of earnings reports expected Tuesday. Early morning reports are expected from Merck , Pfizer, UPS, Aetna, Corning, Deutsche Bank and BP. American Express, Twitter, Amgen, Anadarko Petroleum and Dreamworks report after the closing bell.

—By CNBC's Patti Domm.

[greengiraffe]

Apparently goalpost for rate hike shifted to focus on wage growth - around 3%. Rightly or wrongly since unemployment not a good guage as many out of jobs already given up looking for one, hence umployment may be somewhat structural...

http://www.cnbc.com/id/101879714

Fed tapers another $10 billion
Jeff Cox | @JeffCoxCNBCcom

A second-quarter economic rebound did nothing to change the outlook of the Federal Reserve, which stayed the course Wednesday with ultra-easy monetary policy.
While the U.S. central bank voted to cut its monthly bond-buying program another $10 billion, it left its short-term interest rate target near zero and expressed only tepid encouragement about growth. The Fed also voted to continue to reinvest proceeds from maturing bonds as its balance sheet swells near the $4.5 trillion mark.
Market reaction was modestly positive to the statement with stocks shaving losses.
There was some thought that the meeting could feature dissent, particularly from Dallas Fed President Richard Fisher, who penned an op-ed piece in the Wall Street Journal earlier this week indicating his dissatisfaction with ultra-easy monetary policy from the U.S. central bank. After the Fed released its meeting statement, several analysts noted "tension" within the language.
However, the sole "no" vote actually came from Philadelphia Fed President Charles Plosser, who said the committee was not adequately taking into account the economic progress. He "objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for 'a considerable time after the asset purchase program ends,' because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals," the meeting statement read.
"The tension inside that meeting must have been significant. … My guess is at turning points it's always hard in that room," said Bob Doll, chief equity strategist at Nuveen Asset management.
Read MoreFed up? Yellen facing challenges from within
The decision came the same day the Department of Commerce reported that gross domestic product increased 4 percent in the second quarter on an annualized basis. Perhaps more importantly, the report indicated that real personal consumption expenditures—part of the Fed's key inflation measure—increased 2.5 percent.

Pete Marovich | Bloomberg | Getty Images
Janet Yellen, chair of the U.S. Federal Reserve
However, the FOMC gave inflation only modest recognition in its statement.
"Inflation has moved somewhat closer to the Committee's longer-run objective. Longer-term inflation expectations have remained stable," the statement said.
Market reaction was modestly positive to the statement with stocks shaving losses.
"The market with the GDP number saw that as a sign that maybe they were going to give us a little bit more guidance about being more aggressive, but that didn't come," said Todd Hedtke, vice president of investment management at Allianz.
Pimco CIO Bill Gross, who runs the world's largest bond fund, said the Fed is probably looking past both unemployment—currently at 6.1 percent, below the Fed's 6.5 percent target—as well as inflation and instead to wages. Gross expects salary gains are still below the level that Fed Chair Janet Yellen deems desirable before raising rates.
"Until that happens, until you see a jump to 3 percent, I don't think Janet Yellen and the Fed are really going to blink from their current dovish posture," he said.
The main clue in the statement may have come from the phrase "underutilization of labor resources."
"The underlying question is unemployment," Hedtke said. "Even though the overall unemployment rate has continued to come down, if you look at wage growth that is still below where they probably want it."
The committee did note that "the likelihood of inflation running persistently below 2 percent has diminished somewhat."
"The next time we see forecasts from FOMC measures, they're going to be bringing forward rate hikes," said David Kelly, chief global strategist at JPMorgan Funds. "Eventually I think the market itself is going to bring forward its expectation of rate hikes."

[greengiraffe]

http://www.cnbc.com/id/101895401

Goldman: 'Dramatic divergence' coming in market
Jeff Cox | @JeffCoxCNBCcom
8 Hours Ago
CNBC.com
84
COMMENTSJoin the Discussion

Stocks will significantly outperform bonds in the years ahead as investors get used to interest rates that will rise more than consensus expectations, according to an analysis from Goldman Sachs.

Goldman foresees the Federal Reserve raising rates in the third quarter of 2015 and taking its funds rate all the way to 4 percent eventually, about double the level predicted by many in the market, including bond manager Pimco, which foresees a short-term "neutral" level of half that.

"We forecast a dramatic divergence between stock and bond returns during the next several years," Goldman strategist David J. Kostin and others wrote in a note to clients.


Adam Jeffery | CNBC
The firm sees the S&P 500 stock index returning 6.2 percent a year between now and 2018—well below its stellar performance of recent years—when the funds rate hits 4 percent. During that time, Goldman projects the benchmark 10-year Treasury note to return just 1 percent, compared with a 10.8 percent annualized return over the past five years.

Read MoreGoldman downgrades stocks, warns of short-term risk
At the core of the forecast is expectation that U.S. gross domestic product will accelerate to a 3 percent or more pace in the coming years, a level it has failed to achieve during the entire post-financial crisis economic recovery. That contradicts calls from former White House economist Larry Summers and others that the U.S. is mired in "secular stagnation" and unlikely to post trend growth for an extended period of time.

Goldman disagrees with that thesis and sees the rate on the 10-year note, currently about 2.5 percent, rising to 4.5 percent as the economy grows.

As for the Fed changing from ultra-easy monetary policies, Goldman points out that the market historically has done well in the early stages of previous tightening cycles. Despite recently issuing a "neutral" rating on stocks, Kostin said he expects the S&P 500 to gain 8 percent over the next 12 months. Kostin will be on CNBC's "Squawk on the Street" at 10 a.m. to discuss his call.

Market valuation is about equal to where it has been prior to previous tightening, he argued.

Read MoreI call BS on Goldman's stock-market call: Polcari
"On a sector level, cyclical equities tend to outperform the index during the lead up to rate hikes, although there are few discernible patterns in the months following rate hikes," Kostin said. "Information technology has outperformed on average, although these results are skewed by the dot-com bubble coinciding with the interest rate hikes of 1999. Excluding information technology, the S&P 500 still averaged a strong 11.7 percent return during the year prior to a rate hike, while the median stock returned 13.1 percent."

Kostin sees inflation, as gauged through the consumer price index, running about 2 percent annually. By the time 2018 rolls around, he projects an S&P 500 level of 2,300, about 19 percent above current levels.

—By CNBC's Jeff Cox

[greengiraffe]

US jobless claims fall to 289,000
DOW JONES NEWSWIRES AUGUST 07, 2014 11:30PM

New applications for unemployment benefits fell last week to this year's second-lowest level, a new sign of an improving labour market.

Initial claims for unemployment benefits decreased by 14,000 to a seasonally adjusted 289,000 in the week ended August 2, the Labor Department said on Thursday. That was lower than the 300,000 new claims forecast by economists surveyed by The Wall Street Journal.

Claims for the previous week were revised up slightly to 303,000.

The four-week moving average of claims, which smooths out weekly volatility, decreased by 4,000 to 293,500. It marked the best four weeks of claims data since February 2006.

Thursday's report showed the number of workers continuing to draw unemployment benefits fell by 24,000 to a seasonally adjusted 2.5 million in the week ended July 26. Those figures are reported with a one-week lag.

Jobless claims, a proxy for layoffs, have been trending sharply lower this year. The improvement has continued through July, a period during which auto makers typically shut factories for retooling and temporarily lay off many of their workers. This year companies have sought to minimize shutdowns in order to take advantage of strong demand for new cars and trucks.

Hiring has also improved as companies grow more confident about the economic recovery. July marked the first time since 1997 that employers have added 200,000 or more jobs for six consecutive months. The unemployment rate stood at 6.2 per cent last month, down from 7.3 per cent a year earlier.

Still, the share of workers that can't find jobs remain at historically high levels, while many economists believe that metric overstates labor-market health. Broader labor-market gauges indicate many people who would like full-time employment are stuck in part-time jobs and that others have given up their job searches.