federal reserve

Federal Reserve Leaves Rate Unchanged

The Federal Reserve leaves the federal funds rate unchanged. Kansas City Federal Reserve President Thomas M. Hoenig was the lone dissenting voice. Below is the press release along with commentary on general economic conditions.

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

We Don't Have Jobs, Fed Will Raise Rates Anyway

We can’t wait until unemployment is where we’d like it to be” or inflation gets “out of control” to tighten credit

The above is a quote from Federal Reserve Chair Ben Bernanke.

Gets worse, Bernanke believes the economy will not dip into another recession, yet of course, unemployment will remain at high levels.

While the Fed will raise interest rates from a record low before the economy returns to “full employment,” Bernanke said officials don’t know when that process will start. The banking system isn’t fully healthy and lenders are “cautious” in providing credit, he said.

“The unemployment rate is still going to be high for a while, and that means that a lot of people are going to be under financial stress,” Bernanke said at the event, part of a dinner hosted by the Woodrow Wilson International Center for Scholars.

Bernanke’s stance is consistent with that of several Fed colleagues. Atlanta Fed President Dennis Lockhart said June 3 that the central bank may need to raise rates even with “unacceptable levels of unemployment,” while Eric Rosengren of the Boston Fed said last month it wouldn’t be “appropriate” to have rates close to zero with the economy at full employment.

Reuters: An economic puzzle Bernanke can't solve

link to Reuters

This should be a no-brainer for Economic Populist readers...

(Reuters) - It's a mystery that has puzzled even Federal Reserve Chairman Ben Bernanke: if the U.S. economy is growing rapidly, why isn't it creating jobs?

 

Perhaps we should send Bernanke the link to the site?

 Bernanke offered two possible explanations.

A Letter Worth Reading from Senators Bernie Sanders & Jim Webb

You might not be aware of this but there are two Federal Reserve Board Seats Unfilled, soon to be three. Mark Thoma:

For whatever reason, the administration has not taken full advantage of its chance to shape monetary policy during the downturn. The number of open positions is a large fraction of the Federal Reserve Board, and it skews the balance of power on the Federal Open Market Committee (where monetary policy is decided) toward the regional banks. Many of the regional bank presidents are inflation hawks, more so than the Governors, so this may have affected the Fed’s policy choices.

The Federal Reserve's Exit Plan is Another Bank Bail Out Pig Fest

The Federal Reserve is announcing an exit strategy for credit tightening, according to the Wall Street Journal.

The centerpiece will be a new tool Congress gave the central bank in October 2008: an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as "interest on excess reserves," this rate is now 0.25%.

So, the Fed pays banks interest on money lent to the Fed from the banks.

Fed considers QE 2.0

This explains why the dollar dropped so much yesterday.

(Reuters) - The Federal Reserve is discussing re-entering the mortgage-backed securities market later this year if its buying power is needed to hold down interest rates, Market News said on Tuesday in a story citing Fed officials.
The $5 trillion agency mortgage-backed securities market may weaken when last year's biggest buyer, the Federal Reserve, ends its $1.25 trillion agency MBS purchasing program at the end of the first quarter of 2010.
Fed officials, however, "are prepared to contemplate changes if need be, depending on conditions in the economy, housing finance and in financial markets more broadly," Market News said in a story written by Steven Beckner.

Implausible Deniability of Ben Bernanke

Federal Reserve Chair Ben Bernanke says the Housing Bubble is Regulator's Fault and the Fed had nothing to do with it:

“The best response to the housing bubble would have been regulatory, rather than monetary,” Bernanke said today in remarks to the American Economic Association’s annual meeting in Atlanta. The Fed’s efforts to constrain the bubble were “too late or were insufficient,” which means that regulatory actions “must be better and smarter,” he said.

Right o! Bernanke supported all of Alan Greenspan's cheap money policies:

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