Federal Reserve To Hold Short Term Auctions
March 28, 2008
The Federal Reserve announced plans on Friday to auction US$50 billion in short term credit to banks. The plan to offer the special term auction is in aid of relieving some of the liquidity issues currently being faced by the country in international markets due to the fallout in the high risk based mortgage-backed securities market.
The normal method will be observed for these auctions, with the winning banks paying the same interest rate for their 28 day credits. The auctions have been scheduled for April 7th and 21st and the Federal Reserve have made it clear that these auctions could continue further, as long as they were required.
Fluctuation In Treasury Bonds
March 28, 2008
The market for Treasury bonds has been extensively fluctuating since Friday, when they opened low and moved up to make gains later in the day. Speculation is that the low sales figures and conservative inflation has driven bonds lower.
At this stage, the benchmark for 10 year bonds has reduced by 0.01%, leading to a return of 3.529%. This was prior to the release of data which has shown that the yield price, which is converse to the price, is currently at 3.538%.
A third consecutive month of lower sales figures was reported by the Commerce Department, whilst inflation seems to be leveling out. Prices for consumers have risen by 0.1% for January alone, along with a 0.1% rise in core consumer prices - core excludes food and energy prices - which was predicted by economists.
Democrats Guarantee Surplus In Budget
March 7, 2008
On March 5th, Democrats said they would be producing a substantial surplus by the end of 2012. They plan to achieve this by letting the president Bush’s tax slash to expire as planned. The house pf Democrats were very near to giving the initial approval of the blueprint of the budget in the election year.
The budget for the year 2009 which is worth more than $3 trillion is anticipated to go through the House Budget Committee with the help of a party-line ballot. This budget is projected to create higher inflation for various domestic areas. This prompted the White House to respond, saying that the President would reject any bills which were providing financial support to agency budgets.
On March 6th, a vote session was held by the Senate Budget Committee on an almost identical plan. The main issue at hand right now is the yearly congressional budget declaration. This is a non binding certificate which sets the rules for further legislation which is meant to set taxs in place and is also used for deciding the spending limits for the budget year which would begin on the 1st of October.
As of now, the senate is planning on a budget which is worth almost $18 billion. This is 4 percent higher than the budget the Bush administration had made for the purposes of various non-defense programs which are annually funded by Congress. The various non-defense programs include health, education, place of residence and medical support for war veterans, research and so on. The budget that is designed by the House is offering a hike of almost $22 billion in these areas. This is almost a 5% increase.
Last year, it was President Bush who managed to win in the budget brawl. This time around , he is keen on bringing the lawmakers to kneel. Sensing this, Democrats have already indicated that they would not be sending several spending bills in this year. This is because they hope to work better with the next-in-line president who they believe is going to be a Democrat. President Bush is expected to leave his White House residence by the 20th of January, 2009.
Majority of the Democrats in the house right now are saying that they are most probably going abolish the tax reductions for wealthy tax paying citizens. They said that they intend to extend these tax slashes to the people of lower and middle income areas. From what the Democrats have been saying, they are going to be letting the tax reductions on investments, incomes, married couples and married couples having children, come to an end.
The Grand Old Party members however are vehemently opposing such a move. They say that the move from the Democratic Party not only hurts the rich, but also taxes heavily on each and every tax paying individual in the country. The Republicans are saying that increasing the taxes each American will have to pay is not going to be good for the nation’s progress and economy.
White house to go against the foreclose bill
February 27, 2008
The White House on the 26th of February said that it is going to veto a foreclosure bill that will reach there. The bill seeks to follow the recent economic stimulus package with many other proposals to get the struggling housing market to stand up on its own. The bill also seeks to reduce the number of foreclosures that are happening in the country.
The democrats in the senate had wanted to begin the debate on the issue as soon as possible but all action on the topic has been postponed to a later date in the week as the republicans are keen on keeping the subject of Iraq in the prime position.
The housing bill with which the Democrats came up with would change the bankruptcy laws that are there in the land and would provide the judges to decrease the interest rates and cut down on the money the borrowers owe the mortgage providers. It would also provide $4 billion to communities to buy and recuperate the already foreclosed houses. It also tries to make the sub prime mortgage loans more transparent to make sure that the borrowers would not be surprised by some big payment increases.
The White House however said that the amount of $4 billion is too high for the purpose of buying foreclosed homes. It also said that if the bill was passed it would serve as a bailout for the loan providers and the lenders were doing nothing to help the homeowners who are struggling to cling on to their homes. The White House also said that both the provisions that are mentioned in the bill would actually result in delaying of the recovery of the housing market.
Some of the other features that are there in the democratic bill are the provisions taken from the Senate’s version of the stimulus bill to encourage the mortgage revenue bonds. It will also add a decent amount of flexibility to help the homeowners get a refinance done on their sub prime loans. The measures would also allow the homebuilders as well as many other money losing businesses to reclaim those taxes which were paid previously.
This bankruptcy measure which the Democrats are trying to get approved is being vociferously opposed by many lenders and mortgage providers not to mention the long list of Republicans. They say that if such a bill got approved it would hurt the borrowers as it would then mean higher interest rates and increased down payments to reduce the risk of the homeowners trying to file for bankruptcy and get a court intervention.
The Democrats as a response to this claim of the Republicans and the money lenders said that they would tighten the bankruptcy provision that is mentioned in the bill so that only those borrowers of a sub prime loan would be able to get the benefits of the provisions. They also said that in order get the benefits the borrowers of the sub prime loans they will have to prove that they are not in a position to afford their current mortgage.
Federal Reserve forecasts economic slowdown
February 21, 2008
On Wednesday, the 20th of February, the Federal Reserve published its predictions regarding the future of US economy. This was published along with the minutes of the two meetings of the Fed held in the month of January and it was declared that the growth rate of the economy is going to slow down further. Ben Bernanke, the chairman of the Federal Reserve said that they might cut the interest rates even further to stop further slowing down.
The Fed said that the growth rate they see for the future is in the range of 1.3 percent to 2 percent in 2008. This was down from their previous forecast in the month of October when they said that the growth was going to be in the range of 1.8 percent to 2.5 percent for the year 2008. In the report, they compiled the central bank also said that rate of unemployment in the year is going to be between 5.2 percent or 5.3 percent. This rate which they have predicted is more than what they had forecasted earlier. The previous forecast was only 4.8 percent or 4.9 percent. The unemployment rate in the month of January according to the reports of the Labor Department was 4.9 percent.
Even though the Federal Reserve has come out with the most downbeat forecast till date, the Fed officials still remain optimistic about the entire scenario. The leading economists in the country, who are of the view that USA is already in a recession, were totally baffled by the forecast of the Fed.
The Wall Street, however, was quite happy with the forecast report with which Fed came out. The fact that they are still considering cutting down on the rates resulted in the stocks rallying late on Wednesday. This is despite the fact that the Fed, in its report has also mentioned that expectations of an inflation are going to be very high this time. Oil prices hitting a record high of almost $101 a barrel was also not enough to discourage the investors on Wednesday.
Ben Bernanke in the previous week had also said that the forecast that they were going to produce was going to be rather gloomy. In an effort to keep the recession at bay, the Fed had cut the interest by more than 1 percent in the month of January in two different moves. During that time period, many members were so alarmed by the inflation rates that they proposed increasing the rates back to certain extent. But, now, most members feel that the cut in rates is justified by the current forecast which they let out.
Even though the term recession has not been mentioned in the forecast report, the Fed has mentioned an Economic downturn twice. This, many economists believe, is the closest that Fed will ever come to admitting that the economy is doing very badly indeed. For most part of the report, the Fed has also dismissed the risks concerning inflation.
Stimulus plan finally approved by the Congress
February 12, 2008
On Thursday February 7, the Congress finally approved the stimulus plan. This move has been aimed at trying to give the randomly deteriorating economy of the country a boost. Now with the plan being passed it would enable as many as 130 million plus houses to get a tax rebate cheque this summer as well as the spring.
The approval of the plan has come only three weeks since President Bush had first proposed the economic stimulus plan having a total budget of $150 billion. Naturally the plan has been approved only after it has received its fair deal of corrections and additions. The senate has this time added rebates for almost twenty millions of seniors and almost 250,000 disabled veterans. The latest plan which was adopted by the house on Thursday night is supposed to cost anywhere around $168 billion in the next two years. The plan will now go to the table of the president for his signature. According to the Deputy Press Secretary of the White House, the measure will reach the White House by next week. Even though the internal revenue service will start their work with immediate effect, the rebate cheques will not reach the houses for at least a few months. This is because the features and privileges mentioned in the plan are many and the implanting of these plans will take a lot of time as well as manpower.
President Bush in one of his statements after the approval of the plan said that the plan that he has come up with will be tough, broad-based, effectively as well as timely. He also mentioned in the statement that the plan was meant to stimulate spending from the part of consumers and to eventually provide the urgently needed investment for various businesses.
Once the plan comes into action the rebates it gives most people are many. For starters, almost all the single taxpayers will receive$600 and the couples will get a total of $1,200 as well as $300 for each child for those who have children under the age of seventeen. The plan also has the provision which enables all citizens who has a total yearly income of $3,000 to receive a $300 rebate. This is also the case for the seniors who have their name mentioned in the Social Security even if they have not paid any income tax. This move has been included in the plan to make sure that the adult citizens of the country are leading a comfortable life. Another feature of the plan is that the rebate phase out begins at an amazing figure of $75,000 for singles and $150,000 for couples. The phase out is applicable only on the adjusted gross income of the incomes. This is again to make sure that the citizens are receiving as many privileges as possible. It also allows the people to save a lot more and then eventually spend a bit more than what they are doing now.
Service sector in US facing slow down
February 11, 2008
As per the reports that have come from New York on the sixth of February, the US economy is not at all in a position to avert a recession in its service sector. Even the smallest sliver of hope had diminished by the end of Tuesday that the country might avoid the slowdown. This is the first time that it is happening in the last five years. The news turned out to be a harsh one for many investors who were starting to believe that Federal Reserve would come with something to find a way out of the worst potential slowdown that has happened since 1991. The seriousness of the situation can be understood from the fact that Dow Jones industrial average lost 370 point in one day which was the biggest drop that took place since August. The result was a massive tumble of stocks and points.
What most people are concerned about is not whether or not there would be a recession, but about how bad the recession is going to be. What even the optimist find hard to digest is the fact that the numbers are almost terrible and beyond belief. The talk has been only about this says Scott Anderson a senior economist working at the Wells Fargo & Co; whether or not the recession is going to be a mild one or a severe one. The true nature of what is to be expected can be derived from the reading from the Institute of Supply Management which said “what is in store was going to be as big a shock as you can probably get”. According to Mr. Anderson, the month of January might be known in the future as the month which was the official start of one of the biggest recessions in the near past.
Many companies in the country are now filing for bankruptcy and are saying that they fell victims the recent slide in the housing market as well as their own debt load. Many other companies and shops are now cutting down on their employees and are not recruiting anymore. Other companies and commercial establishments are also employing such measures cut down on their loss. Some of the measures employed are slashing its 2007 earnings guidance. There are companies in the country which eliminated 28,000 jobs in the month of January alone and 269,000 jobs in the last 12 months. 17,000 was the total number of jobs the economy alone lost and this was the first country wide loss of jobs since the august of 2003. Another part of the service sector which has been hit badly is the financial services industry. It was very badly struck by the decreasing home prices, mortgage defaults, and the devaluation of other mortgage backed investments. The other people who find themselves in trouble are the banks, mortgage lenders, and the brokers.
The US Defense Budget creating shock waves
February 11, 2008
Recently, a very big argument has broken out based the issue of the size of the 2009 budget the pentagon has come up with. The hot tissue that got a lot or attention was the very large defense budget that was recommended. In retort, the defense secretary Robert Gates argued that the military budget of $515.4 billion which is 3.4 percent of the country’s gross domestic product is nothing compared to what the budget was in the previous years. He said that it was a bargain by the standards that have been set till now. As an explanation he said that during the times at which the country was at war the percentage of GDP that goes for defense was usually high. He laid out the statistics which said that the percentage of GDP that went for defense during the time US was at war with Korea was 14 percent and during the period of Vietnam war, it was 9 percent.
Anyhow, the critics did not feel the same way as Mr. Secretary and went on to measure the magnitude of this year’s defense budget with a completely different yardstick. What they found out was that this year’s defense budget formulated by the pentagon was an all time high. The New York Times editorial page even went on to say on the 2nd of February that the 2009 defense budget, even after adjusting to inflation, the maximum amount will be spent for military purposes since World War II.
So, the question that the people are trying to figure out now is whether the defense budget would turn out to be a bargain or a burden. The interesting thing about the defense secretary’s words is that he feels that the country is at war. However, the citizens of the country are certainly not feeling like that. Since not a single thing in the country is rationed, number of causalities are relatively few and the problem of waging wars is completely restricted to less than 2 percent of Americans that are part of the US military force there is nothing happening to suggest that the country is at war. So the statement made by the defense secretary becomes all the more intriguing. Are his words suggesting something?
It is only fair for the tax payers of the country to get a bit scratchy when they are asked to spend this much amount of money just for defense next year. The reason why they get more confused is because the defense budget, the pentagon has come up with recently does not include the various major issues like that of the wars in Iraq and Afghanistan. This is another funny part of the US defense budget. They have always omitted some items from the defense budget. Nuclear weapons can be taken for an example; they fall under a completely different section known as the Department of Energy. The pentagon also mentioned that it is not planning to cut down on the weapons this time and this is the other reason as to why the budget was a bit high this time.
Federal Reserve Cuts Primary Discount Rate
August 17, 2007
The US Federal Reserve has today announced it has cut the primary discount rate of interest, at which it lends to banks and mortgage lenders.
The news comes after a week of poor trading on stock markets around the world off the back of major doubts about the future of the world economy.
Analysts had feared that growing defaults and liquidity problems spawned by the rogue sub-prime lending market in the US would lead to a global credit crunch, whereby businesses and prospective home owners would be faced with tougher lending policies in a bid to preserve resources.
Last week, the Federal Reserve announced its decision to inject more cash into the banking system as an emergency aid measure.
Today’s news, which sees rates fall from 6.25% to 5.75% are designed to make it easier and cheaper for banks to borrow from the central reserve, which in turn should help ease concerns over credit availability.
After poor trading on world markets this morning, investors were buoyed by this complimentary measure, created to add further weight to the cash aid pledged last week.
After weeks of poor trade across the world, most major markets were sent soaring off the back of the news, which will prove to be a relief for shareholders and investment plans - particularly corporate pension funds, which have been hit badly over the last few days.
The Federaql Reserve strategy has been welcomed by analysts, if not considered extremely unorthodox. The Federal Reserve had not been expected to make any ammendments to interest rates before its September meeting.
The last time the Federal Reserve made any interest rate changes between its six-weekly meetings was September 11th 2001, highlighting the urgency with which the Reserve considers its actions in saving the ailing mortgage market.
Federal Reserve Rumoured To Help Mortgage Lenders
August 9, 2007
The Federal Reserve are rumoured to be following in the footsteps of the European Central Bank in supporting US mortgage lenders, amidst fresh fears of a global credit crunch.
The Federal Reserve, responsible for US monetary policy, is thought to be considering financial aid for mortgage lenders, many of whom have been driven to bankruptcy over lax lending in the risky sub-prime market.
The sub-prime market, which lends to borrowers with poor credit histories, has been the focus of international scandal and worldwide economic crisis, after it was unveiled that spiralling bad debts and foreclosures had arisen as a result of lending too far beyond salary levels with impractical rates of interest.
The news comes after the European Central Bank today announced the most considerable aid package to the financial market since the terrorist attacks of 9/11 in 2001, where banks and insurance companies were badly hit, and worldwide growth tailed off significantly.
The aid package, totalling over 95 billion euros, will come in the form of a cash injection to avoid liquidity problems, and an impending credit crunch, which many experts fear will plunge us into a global recession.
Fears as to a lack of credit availability and a potential global recession have prompted speculation as to the imminence of the Federal Reserve’s intervention in the struggling US financial markets, particularly after the measures announced by the European Central Bank today.
Without assistance in US financial markets, many mortgage lenders and banks could be facing problems in liquidity terms, making it more difficult for lenders to lend money, and borrowers to obtain the funding they need.
As a result, it is feared that economic growth across the globe will slowdown, possibly leading to a recession, unless finance is readily available for business growth and personal funding.
Ebay resists proposed reporting rules
February 20, 2007
Ebay (NASDAQ: EBAY) says that the administration of US President George W. Bush is trying to force it to inform on sellers who use its online auction site. The company said that they are willing to co-operate in individual Internal Revenue Service (IRS) investigations, but that it is not their place to report on seller’s income from the site. That, they say, is the individual seller’s responsibility. Ebay has more than 200 million registered users, and says that around 4.3 million of those users rely on the site for a significant part of their yearly income.
The plan reportedly would force Ebay and other online auctioneers to report American sellers who complete more than 100 transactions worth at least $5,000 each year to the IRS. The new rules are planned to be implemented from 1 January 2008. Besides putting it in the position of go-between for the government, Ebay says that the plan is unfair because it does not target online classified advertisement sites like Craiglist.
The online auctioneer is actively lobbying in Washington and will not only challenge the Treasury Department’s authority to require reporting of some of its users activity but will also challenge the legality of the proposed rules, saying that while they offer “auction-like” transactions, they are not in reality auctions because they have a fixed ending time. At least one member of the US House of Representatives has said he would work with Ebay to oppose the proposed rules.
GDP up in US in fourth quarter
January 31, 2007
New data released on Wednesday showed that the gross domestic product in the US was 3.5 percent higher in the final quarter of 2006, following on a gain of 2 percent in the third quarter. However, the rise in core prices were up at rate of 2.1 percent after growing by 2.2 percent in the previous quarter. Most of the growth was said to be linked to a 4.4 percent rise in personal consumption during the quarter.
The new data did not have much influence on the Federal Reserve’s latest interest rate decision. The Fed left interest rates at their current 5.25 percent. Most analysts believe that the Fed is more likely to raise than to lower rates later in the year. Still, most expect that rates will neither rise nor fall either today or later in the year even though many analysts still see a moderate risk for inflation.
Where the new GDP figures did have an effect was in currency and government bonds markets. The dollar was higher versus both the yen and the euro. In addition, yields on US Treasury bonds rose, with ten-year issues yielding 4.9 percent and yields on 30-year paper up to 5 percent. After the Fed announced its interest rate decision, leaving the rate at 5.25 percent for the fifth meeting in a row, yields on 10-year bond dropped to 4.84 percent.
US bond yields up on interest rate fears
May 30, 2006
In the US on Tuesday, concerns about future rises in the interest rate caused Treasury bond yields to rise. The new concern was spurred by comments by the president of the Chicago Federal Reserve that inflation is now at the upper end of the range at which the economy remains stable. However, bond yields did not rise as much as they could have as the equities markets saw significant declines, which tends to send investor money into bonds. Yields on two-year Treasury bonds were 2.1 basis points higher to 4.975 percent, while ten-year issues had added 3.4 basis points to a yield of 5.086 percent.
Yields down on US Treasury bonds
May 5, 2006
Yields were down and prices up on US Treasury bonds on Friday on new data that helped calm fears that interest rate rises would go on longer than has been generally expected. It was revealed that only 138,000 new jobs were created in the United States in April, far below the 200,000 which had been expected. In addition, the March figure of 211,000 new jobs created was revised downward to 200,000. However, there was still some concern over interest rates from the news that average hourly earnings were up 0.5 percent in April, to an annualized rate of growth of 3.8 percent, the highest level since August 2001.
On this news, yields on two-year Treasury bonds dropped 3.8 basis points to 4.941 percent. Yields on ten-year issues were at 5.121 percent, a decline of 4 basis points.
Bernanke: rate rises might pause
April 27, 2006
In testimony before the US Congress on Thursday, Federal Reserve Chairman Ben Bernanke said that it is his belief that economic growth in the US will become more moderate as the year progresses and that this will put growth at a “more sustainable” level. He also said that at some point the Fed will likely wait out a month or two without raising interest rates in an effort to “receive information more relevant to the outlook”. Despite these comments, it is still expected that the Fed will hike interest rates by another quarter point, to 5 percent, when it meets next on May 10.
US Treasury bonds saw yields drop in reaction to Mr. Bernanke’s comments. The two-year bond dropped 6.4 basis points to a yield of 4.925 percent, while the slightly less-sensitive to rates ten-year bond was down by 2 basis points to 5.090 percent. The dollar weakened in response to the remarks, hitting $1.25 versus the euro, a seven-month low. Sterling added 1 percent against the dollar, to $1.80. The equities markets were initially up after hearing Mr. Bernanke’s testimony, but then turned mixed as investors had time to absorb his comments.
Among other remarks, Mr. Bernanke said that rising energy prices were a concern, posing risks to inflation and to economic activity, but that if prices stabilize their negative effect should be minimized. He also commented on the housing market, saying that while the outlook there is uncertain, current data indicates that this sector of the economy should cool down gradually rather than experiencing a sharp downturn.
Bond yields up
April 25, 2006
Yields on US Treasury bonds were also up on the day after the Conference Board reported consumer confidence in the United States at its highest level in four years in April, with its consumer confidence index at 109.6 in April, up from 107.2 in March. April’s index level had been expected to decline. In addition, existing home sales in the US were up 0.3 percent tin March against in expected drop.
At late morning in New York, ten-year Treasury bonds were yielding 5.079 percent, in increase of 9.4 basis points. Two-year bonds were up 6.9 basis points to a yield of 4.954 percent.
US bond yields down
April 10, 2006
Yields on US Treasury bonds were down on Monday as investors wait for new economic data scheduled for release later in the week. Also helping bond prices were comments by Federal Reserve governor Susan Bies, who implied that further hikes in the interest rate are not necessarily a given. Most analysts, however, still believe that rate hikes will come in May and possibly in June.
After reaching a yield of 4.994 percent on Friday, ten-year bond yields were down 2.5 basis points to 4.961 percent during the day Monday. Two-year yields were down 1.6 basis points to a yield of 4.898 percent.
Yields on Treasury notes down
April 4, 2006
Yields on US Treasury bonds were down on Tuesday on profit-taking and a lack of news to inspire investors. At late morning, yields on ten-year notes had fallen by 0.8 basis points to 4.858 percent, down from 4.909 percent on Monday. Two-year yields were down by 2.1 basis points to 4.833 percent.
US bond yields lower
March 20, 2006
Yields on US Treasury notes were down on Monday ahead of comments from US Federal Reserve Chairman Ben Bernanke in front of the Economic Club of New York scheduled for Monday evening. Traders hoped that his remarks might shed some light on what the Fed will do about interest rates at its meeting next week.
By late morning in New York, two-year Treasury yields were down 0.4 basis points to a yield of 4.649 percent, while ten-year notes were yielding 4.646 percent, a loss of 3 basis points.
US bond yields lower
March 20, 2006
Yields on US Treasury notes were down on Monday ahead of comments from US Federal Reserve Chairman Ben Bernanke in front of the Economic Club of New York scheduled for Monday evening. Traders hoped that his remarks might shed some light on what the Fed will do about interest rates at its meeting next week.
By late morning in New York, two-year Treasury yields were down 0.4 basis points to a yield of 4.649 percent, while ten-year notes were yielding 4.646 percent, a loss of 3 basis points.