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Volker Time ? Global sell-off raises turbulence fears

 
Volker time????

Global sell-off raises turbulence fears
Last updated: June 20, 2013 11:19 pm By Ralph Atkins in London and Michael Mackenzie in New York

An abrupt global sell-off in equities, bonds and commodities on Thursday has fuelled fears that the world is entering a fresh phase of financial turbulence as the US Federal Reserve prepares to ease its large-scale asset purchases.

Emerging markets were among the worst hit in volatile trading after Ben Bernanke, Fed chairman, on Wednesday set out the case for slowing the pace of QE3 this year as the US economy picks up momentum. As the dollar strengthened, gold prices tumbled by as much as 4.8 per cent to a two-and-a-half-year low. Oil fell 3.3 per cent

http://www.ft.com/intl/cms/s/0/ea02f2fe-d9c2-11e2-98fa-00144feab7de.html#axzz2WoMfFtWS

Fed tones down talk of more stimulus

Fed tones down talk of more stimulus
ReutersReuters – 2 hours 1 minute ago
By Pedro da Costa and Mark Felsenthal

WASHINGTON (Reuters) - Federal Reserve policymakers appear less inclined to launch a fresh round of monetary stimulus as the U.S. economy gradually improves, according to minutes for the central bank's March meeting.

Economic growth has strengthened slightly, Fed officials noted, but they remained cautious about a broad pick up in U.S. activity, focusing heavily on a still elevated jobless rate.

Despite this caution, only "a couple" of members thought additional monetary stimulus might be needed to support the economy if it loses momentum or inflation remains too low for too long.

http://finance.yahoo.com/news/fed-softens-tone-stimulus-talk-180436972.html

Bernanke Hesitates to Extol Economy to Keep Reputation

Bernanke Hesitates to Extol Economy to Keep Reputation
By Caroline Salas Gage and Rich Miller - Mar 26, 2012 10:35 AM ET

Federal Reserve Chairman Ben S. Bernanke may be hesitating to extol the improving economy -- in part to preserve the central bank’s own reputation.

While Fed policy makers upgraded their assessment of the outlook at their March 13 meeting after the most-robust six- month period of job growth since 2006, they reiterated their plan to keep interest rates near zero until at least late 2014, citing still “elevated” unemployment and “significant downside risks.” Bernanke said today that continued accommodative policy will be needed to make further progress.

http://www.bloomberg.com/news/2012-03-25/bernanke-hesitates-to-extol-economy-to-keep-reputation.html?cmpid=linkedin

Bernanke says gold standard wouldn't solve problems

Bernanke says gold standard wouldn't solve problems
WASHINGTON | Tue Mar 20, 2012 4:55pm EDT

(Reuters) - Federal Reserve Chairman Ben Bernanke on Tuesday took aim at proponents of the gold standard, saying that such a system handicaps the government's ability to address economic conditions.

Bernanke spoke in the first of a series of four public lectures at George Washington University that is the central bank's latest effort to counter a raft of negative public sentiment that has arisen from its handling of the financial crisis. The former Princeton economics professor delivers a second lecture on Thursday and two more next week.

"Since the gold standard determines the money supply, there is not much scope for the central bank to use monetary policy to stabilize the economy," Bernanke said. "Under a gold standard, typically the money supply goes up and interest rates go down in a period of strong economic activity - so that's the reverse of what a central bank would normally do today."

http://www.reuters.com/article/2012/03/20/us-usa-fed-gold-idUSBRE82J17A20120320

Backlash against Fed’s $600bn easing

Backlash against Fed’s $600bn easing

By Alan Beattie in Washington, Kevin Brown in Singapore and Jennifer Hughes in London

http://www.ft.com/cms/s/0/981ca8f4-e83e-11df-8995-00144feab49a.html#axzz14PCgOWTZ

Published: November 4 2010 18:43 | Last updated: November 4 2010 18:43

The US Federal Reserve’s decision to pump an extra $600bn into the economy has galvanized emerging market central banks into preparing defensive measures and sparked criticism from leading global economies.

The Fed’s initiative, in response to rising concern about the weakness of the US economy, has fuelled fears of a sharp drop in the dollar and a fresh flood of capital inflows into emerging markets.

Brazil and Germany on Thursday criticised the Fed’s action a day earlier, and a string of east Asian central banks said they were preparing measures to defend their economies against large capital inflows.

Guido Mantega, the Brazilian finance minister who was the first to warn of a “currency war”, said: “Everybody wants the US economy to recover, but it does no good at all to just throw dollars from a helicopter.”

Mr Mantega added: “You have to combine that with fiscal policy. You have to stimulate consumption.” Germany also expressed concern.

An adviser to the Chinese central bank called unbridled printing of dollars the biggest risk to the global economy and said China should use currency policy and capital controls to cushion itself from external shocks.

more:
http://www.ft.com/cms/s/0/981ca8f4-e83e-11df-8995-00144feab49a.html#axzz14PCgOWTZ

"I believe that zero rates during a period of modest growth are a dangerous gamble," Hoenig said Friday.

The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday.

http://www.cnbc.com/id/38693128

"To be clear, I am not advocating a tight monetary policy," Kansas City Reserve Bank President Thomas Hoenig said in the text of a speech to the Lincoln, Nebraska, Chamber of Commerce. "I am advocating a policy that remains accommodative but slowly firms as the economy itself expands and moves toward more balance."

Hoenig has been the lone dissenter on the Fed's policy-setting panel, which on Tuesday repeated the U.S. central bank's pledge to keep interest rates extraordinarily low for an "extended period."

The Fed took the further step of saying it would begin reinvesting cash from maturing mortgage bonds to buy more government debt. The decision reflected the Fed's concern over the slowdown in the economic recovery it helped bring about by cutting rates to near zero in December 2008 and buying nearly $1.3 trillion in mortgage-linked debt to shore up the housing market.

However, Hoenig said Friday he believes the economy "barring specific shocks and bad policy ...should continue to grow over the next several quarters."

The Fed should raise its short-term target to 1 percent, pause to wait for the economy to adjust, and then raise it to 2 percent once it is clear the recovery is on a reasonable growth path, he said, repeating a proposal he has made before.

"I believe that zero rates during a period of modest growth are a dangerous gamble," Hoenig said Friday.

http://www.cnbc.com/id/38693128

The FED Shades of 1970's William Miller

Miller succeeded Arthur Burns as Fed Chairman in January of 1978. He inherited a high inflation economy, still suffering from the increase in oil prices from OPEC. The change in the Consumer Price Index was 4.9% in 1976 and 6.7% in 1977.[3] Nevertheless, Miller maintained a Keynesian belief that inflation could "prime the pump" of the economy, and would at any rate be self-correcting.[4] He thus pursued a strongly doveish policy and opposed raising interest rates. The effect of this was to send the dollar's value spiraling downward. In November 1978, only 11 months into his term, the dollar had fallen nearly 34% against the German mark and almost 42% against the Japanese yen, prompting the Carter administration to launch a "dollar rescue package" including emergency sales from the U.S. gold stock, borrowing from the International Monetary Fund, and auctions of Treasury securities denominated in foreign currencies.[5][6] This proved only a short-term fix; while temporarily steadying the dollar, it soon resumed its fall.[7] The portmanteau stagflation, the combination of stagnation and inflation, increased in popularity during this time to describe the high rate of inflation that was failing to spur the economy.

Miller's lackadaisical measures against inflation caused distress among members of the Carter Administration itself. Treasury Secretary Blumenthal, Inflation Adviser Alfred Kahn, and Chief Presidential Economist Charles Schultze all advocated for increasing the interest rate prior to the April 1979 meeting, where Miller opposed such measures. Carter had to admonish his own staff over the press leaks used to carry on the dispute.[8]

Miller was not perceived as having great prestige; not coming from an economics or Wall Street background, he was seen as an "outsider."[9] A 2003 article in The Economist said that "America's central bankers have all made their weight felt across the political sphere, with the possible exception of William Miller, whose brief tenure in 1978-79 was notable for his attempts to ban smoking at the board."[10] It is rare for the influential chair's opinion to not carry the vote at the Federal Reserve's meetings, but Miller was outvoted by the Board of Governors at a meeting in 1979 where he opposed an increase in the discount rate, the rate at which the Federal Reserve lends to banks.[9]

Economic historians have generally considered Miller's short tenure unsuccessful. The high inflation that Miller allowed required harsh "shock therapy" treatment by his successor Paul Volcker to bring under control, which sent the U.S. economy into recession from 1980-1982. Steven Beckner, a Federal Reserve analyst, offered a particularly harsh assessment:

Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze... If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed's history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar's value. By early 1980, inflation was running at 14 percent.[6]

—Steven Beckner, Back from the Brink: The Greenspan Years