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

Watch Bernanke’s ‘Little’ Inflation Capsize U.S.

Watch Bernanke’s ‘Little’ Inflation Capsize U.S.

A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1 percent for 1915 to 7 percent in 1916 to 17 percent in 1917. To returning vets, that felt awful sudden.

http://www.bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html

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

Here it comes US consumer inflation up two percent

Americans saw prices rise two percent in the year to March according to the Commerce Department's personal consumption expenditures index published on Monday. The FED  see broader inflation levels, as approaching the maximum the central bank normally considers sustainable.

Energy and food costs rose 18.7 percent against March 2009, up almost four percentage points compared with February. Without food and energy spending the inflation level remained stable at 1.3 percent.

Meanwhile the FED said last Wednesday  to keep historically low interest rates for an "extended period," amid "subdued" inflation trends.

“bond vigilantes” : Supply fears start to hit Treasuries

Supply fears start to hit Treasuries
By Michael Mackenzie in New York and David Oakley in London

http://www.ft.com/cms/s/0/c51fbbce-3908-11df-8970-00144feabdc0.html

Published: March 26 2010 19:18 | Last updated: March 26 2010 19:18

The bond vigilantes are finally flexing their muscles. A long period of stability for the US government bond market showed signs of cracking this week as a lack of investor appetite for new debt sent the benchmark 10-year yield to its highest level since last June.

For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

Falling inflation, rising unemployment, the housing market slump, the Federal Reserve’s policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows.

But this week the mood shifted as yields for $118bn of new US debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the UK bond market after the government’s budget ahead of a general election expected in May failed to resolve doubts over future spending and debt reduction.

The term “bond vigilantes” was coined in the 1980s when bond investors pushed up long-term yields to force central banks into taking action to curb inflation. This time, bond investors are less worried about inflation: they are fretting about huge fiscal deficits and the looming bond supply needed to finance them.

“Everyone thought we would see rising rates due to higher inflation, but it appears the bond vigilantes are demanding a higher real rate due to concerns about Treasury issuance,” says George Goncalves, head of fixed income strategy at Nomura Securities.

http://www.ft.com/cms/s/0/c51fbbce-3908-11df-8970-00144feabdc0.html

You can’t inflate your self out of this one

Given the so so volume yesterday I am still holding the position that this is a counter trend rally, not the beginning of a new bull market.

There are some Long term positive trends:

-Export boom
-Technology Migration of Work from Home Revolution or Kitchen laptop revolution causing huge new business formation
-Energy Boom: drilling, oil services, building nuks, infrastructure, and so on adding vast numbers of new jobs (all predicated on a major change in US energy policy)

But perhaps it’s the politics of the rush to the bottom or the search for the lowest common denominator, but the latest “inflate your tires “rhetoric with the assumption that everyone is driving around on flat tires is just too stupid for comment! Next we are going to be told that if we don’t eat we are going to be hungry or if we don’t breathe we will suffocate. Given the nature of the demeaning insults hurled towards the public, its no wonder there is no confidence in the US economy and no perceived leadership from our elected officials. I am beginning to think that if the mainstream media continues this paparazzi style coverage of Mr. Obama the public at large will become quickly disenchanted and the mainstream media will continue to expedite their demise.

The cost of money is about to go up in the US

As the FED warns of imminent attempts to put the brakes on inflation, market watchers continue to speculate on the repercussions.
The main question on everyone’s mind is weather the dollar will keep falling or will a slow rise in US interest rates and perhaps a decline in EU rates push the dollar higher? My bet is that the dollar is moving higher in the short run but to what extent that is going to effect energy, commodity, precious metals, and Ag I am unsure. I would look for the G-10 to make some kind of a joint strong dollar pronouncement, given how much the weaker dollar has damaged EU exports.