Although the US economy is expected to return to growth later this year, there is a danger of a second recession if monetary easing and Tough times a weak dollar lead to increased inflation expectations, a report said.
Massive stimulus spending and moves by the Federal Reserve to fuel economic activity is expected to jump-start the anemic US economy in the last quarter of this year after it contracted 6.3 percent in fourth quarter of 2008.
But the Fed's moves to boost the economy by slashing interest rates and buying up billions in government debt could have undesired consequences, The Conference Board, a private research group, said in the report.
"If the United States experiences a too-rapid recovery, there may be a risk of another recession in 2010," said Bart van Ark, vice president and chief economist of The Conference Board.
"It may fuel expectations for a return to inflation, adding to the uncertainty concerning the pattern and path of economic recovery," he said.
The U.S. economy has the potential for a "double-dip" recession, Van Ark noted, similar to 1980 and 1982, as commodity prices rise on the back of a falling dollar and monetary easing.
He added, however, that the likelihood of this scenario taking place is small as deflation risks are great, while government stimulus spending should stem further economic decline and ease the flow of job losses.
The U.S. economy could contract by 2.6 percent in 2009, the largest annual decline since 1946, the Conference Board said.
Agencies
Showing posts with label Federal Reserve. Show all posts
Showing posts with label Federal Reserve. Show all posts
Saturday, April 4, 2009
Saturday, March 21, 2009
US bank rescue plan likely out on Monday
The US government will announce as soon as Monday a long-awaited plan to try to get bad assets off the books of banks, a cornerstone of its efforts to tackle the credit crisis, The Wall Street Journal reported.
The Obama administration, battling a deepening recession, is set to adopt a three-pronged approach to ridding the financial system of so-called toxic assets, reports said.
The plan would create an entity, backed by the Federal Deposit Insurance Corp, a U.S. banking regulator, to buy and hold loans, the reports said.
It would expand a newly launched Federal Reserve facility -- that lends money to investors to buy securities backed by consumer loans -- to include toxic assets. And it would create new public and privately financed funds to buy such securities under the management of private investment experts.
The Obama administration plans to contribute between $75 billion and $100 billion in new capital to the effort although that amount could be expanded, the Wall Street Journal said.
The Treasury Department and Federal Reserve declined to comment. Sources familiar with the government's thinking have told Reuters details of a plan could be announced next week.
The Bush administration tried without success late last year to set up a mechanism to get bad assets off the balance sheets of commercial banks.
The banks have been hammered by losses incurred by mortgage-related debt that has turned sour amid a fall in house prices and a pickup in defaults, sparking a credit crisis that has strangled the US and global economies.
Obama's Treasury secretary, Timothy Geithner, has outlined a new proposal to soak up as much as $1 trillion in assets through a public-private program.
But investors have grown increasingly concerned that his efforts are running into problems more than a month after he outlined the plan.
The slow start of the new Federal Reserve consumer lending program this week has been seen as a sign that private capital may shun the toxic-asset plan because of public outrage over large executive bonuses.
Many big private investors are worried they could face tough new rules in US financial rescue programs after Congress pressed ahead with efforts to claw back bonuses paid to executives at failed insurer American International Group.
The Wall Street Journal said the Treasury would match private sector finance for the public-private toxic asset funds on a one-for-one basis in most cases.
Washington would be a co-investor also in the new FDIC troubled loans program but could contribute 80 percent in some cases, and would guarantee as much as $500 billion in loans investments, the newspaper said in its report.
The New York Times said the FDIC program could involve government funding for up to 97 percent of the equity.
It also said the plan is likely to offer generous taxpayer subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government.
Agencies
The Obama administration, battling a deepening recession, is set to adopt a three-pronged approach to ridding the financial system of so-called toxic assets, reports said.
The plan would create an entity, backed by the Federal Deposit Insurance Corp, a U.S. banking regulator, to buy and hold loans, the reports said.
It would expand a newly launched Federal Reserve facility -- that lends money to investors to buy securities backed by consumer loans -- to include toxic assets. And it would create new public and privately financed funds to buy such securities under the management of private investment experts.
The Obama administration plans to contribute between $75 billion and $100 billion in new capital to the effort although that amount could be expanded, the Wall Street Journal said.
The Treasury Department and Federal Reserve declined to comment. Sources familiar with the government's thinking have told Reuters details of a plan could be announced next week.
The Bush administration tried without success late last year to set up a mechanism to get bad assets off the balance sheets of commercial banks.
The banks have been hammered by losses incurred by mortgage-related debt that has turned sour amid a fall in house prices and a pickup in defaults, sparking a credit crisis that has strangled the US and global economies.
Obama's Treasury secretary, Timothy Geithner, has outlined a new proposal to soak up as much as $1 trillion in assets through a public-private program.
But investors have grown increasingly concerned that his efforts are running into problems more than a month after he outlined the plan.
The slow start of the new Federal Reserve consumer lending program this week has been seen as a sign that private capital may shun the toxic-asset plan because of public outrage over large executive bonuses.
Many big private investors are worried they could face tough new rules in US financial rescue programs after Congress pressed ahead with efforts to claw back bonuses paid to executives at failed insurer American International Group.
The Wall Street Journal said the Treasury would match private sector finance for the public-private toxic asset funds on a one-for-one basis in most cases.
Washington would be a co-investor also in the new FDIC troubled loans program but could contribute 80 percent in some cases, and would guarantee as much as $500 billion in loans investments, the newspaper said in its report.
The New York Times said the FDIC program could involve government funding for up to 97 percent of the equity.
It also said the plan is likely to offer generous taxpayer subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government.
Agencies
Thursday, February 19, 2009
Oil near $35 amid grim US economic news
Oil prices rose slightly to above $35 a barrel on Thursday in Asia despite grim U.S. economic news that pointed to a deep recession and weaker crude demand.
Light, sweet crude for March delivery rose 54 cents to $35.18 a barrel by late afternoon in Singapore on the New York Mercantile Exchange. The contract on Wednesday fell 31 cents to settle at $34.62.
The March contract expires on Friday, and traders switched their focus to the April contract, which rose 62 cents to $38.03.
The Federal Reserve on Wednesday confirmed what many investors already suspected _ that the US economy has significantly deteriorated in the last few months.
The Fed said it expects the economy will contract between 0.5 and 1.3 per cent this year. Its previous forecast from November had a 0.2 per cent contraction as the worst case scenario.
The Fed also said the unemployment rate will likely rise to between 8.5 and 8.8 per cent this year, higher than its previous forecast of between 7.1 and 7.6 per cent.
The current global economic slump began in 2007 with a crisis in the US sub-prime mortgage sector, and the housing market continues to buckle under the weight of surging foreclosures.
A report from the Commerce Department on Wednesday said construction of new homes and apartments plunged 16.8 per cent in January from the previous month, to a seasonally adjusted annual rate of 466,000 units, a record low.
``The housing data suggests the recession is even worse than we thought,'' said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. ``We need to see the housing market stabilize because consumer sentiment is very much correlated to it.''
Investors are skeptical that a $787 billion stimulus bill signed this week by President Barack Obama will spark a quick recovery. The White House on Wednesday said the government will spend $75 billion to help prevent millions of Americans from losing their homes.
Crude investors are also concerned a jump in oil inventories is reflecting a steep drop-off in demand.
Analysts expect crude stocks will grow by 3.5 million barrels when the Energy Department releases inventory data for the week ended Feb. 13, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Inventories have risen more than 30 million barrels in the last six weeks.
``Inventories are the focus now,'' said Moltke-Leth. ``If they rise again, it will put more downward pressure on crude.''
The Organization of Petroleum Exporting Countries has struggled to bolster prices as output cuts fail to keep up with falling demand.
Venezuelan Oil Minister Rafael Ramirez said Wednesday the group may cut production again at a meeting on March 15, on top of the reduction of 4.2 million barrels a day announced since September. Ramirez said the 13-member cartel would like prices to rise to $70 a barrel.
``OPEC is looking very weak right now,'' said Moltke-Leth said. ``There's a lot of chatter from them, but the market isn't really listening.''
Moltke-Leth said prices will likely fall to about $32 a barrel, which would test the 10-year average price.
``$32 and a half is a significant line in the sand,'' he said. ``It's a key support level, and I expect the market to test how strong it is.''
In other Nymex trading, gasoline futures rose 0.83 cent to $1.07 a gallon. Heating oil gained 1.71 cents to $1.16 a gallon, while natural gas for March delivery jumped 3.0 cents to $4.24 per 1,000 cubic feet.
In London, the March Brent contract rose 98 cents to $40.54 on the ICE Futures exchange.
Agencies
Light, sweet crude for March delivery rose 54 cents to $35.18 a barrel by late afternoon in Singapore on the New York Mercantile Exchange. The contract on Wednesday fell 31 cents to settle at $34.62.
The March contract expires on Friday, and traders switched their focus to the April contract, which rose 62 cents to $38.03.
The Federal Reserve on Wednesday confirmed what many investors already suspected _ that the US economy has significantly deteriorated in the last few months.
The Fed said it expects the economy will contract between 0.5 and 1.3 per cent this year. Its previous forecast from November had a 0.2 per cent contraction as the worst case scenario.
The Fed also said the unemployment rate will likely rise to between 8.5 and 8.8 per cent this year, higher than its previous forecast of between 7.1 and 7.6 per cent.
The current global economic slump began in 2007 with a crisis in the US sub-prime mortgage sector, and the housing market continues to buckle under the weight of surging foreclosures.
A report from the Commerce Department on Wednesday said construction of new homes and apartments plunged 16.8 per cent in January from the previous month, to a seasonally adjusted annual rate of 466,000 units, a record low.
``The housing data suggests the recession is even worse than we thought,'' said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. ``We need to see the housing market stabilize because consumer sentiment is very much correlated to it.''
Investors are skeptical that a $787 billion stimulus bill signed this week by President Barack Obama will spark a quick recovery. The White House on Wednesday said the government will spend $75 billion to help prevent millions of Americans from losing their homes.
Crude investors are also concerned a jump in oil inventories is reflecting a steep drop-off in demand.
Analysts expect crude stocks will grow by 3.5 million barrels when the Energy Department releases inventory data for the week ended Feb. 13, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Inventories have risen more than 30 million barrels in the last six weeks.
``Inventories are the focus now,'' said Moltke-Leth. ``If they rise again, it will put more downward pressure on crude.''
The Organization of Petroleum Exporting Countries has struggled to bolster prices as output cuts fail to keep up with falling demand.
Venezuelan Oil Minister Rafael Ramirez said Wednesday the group may cut production again at a meeting on March 15, on top of the reduction of 4.2 million barrels a day announced since September. Ramirez said the 13-member cartel would like prices to rise to $70 a barrel.
``OPEC is looking very weak right now,'' said Moltke-Leth said. ``There's a lot of chatter from them, but the market isn't really listening.''
Moltke-Leth said prices will likely fall to about $32 a barrel, which would test the 10-year average price.
``$32 and a half is a significant line in the sand,'' he said. ``It's a key support level, and I expect the market to test how strong it is.''
In other Nymex trading, gasoline futures rose 0.83 cent to $1.07 a gallon. Heating oil gained 1.71 cents to $1.16 a gallon, while natural gas for March delivery jumped 3.0 cents to $4.24 per 1,000 cubic feet.
In London, the March Brent contract rose 98 cents to $40.54 on the ICE Futures exchange.
Agencies
Wednesday, December 3, 2008
US slides in slowdown in December 2007; Longer than average
The United States economy officially sank into a recession last December, which means that the downturn is already longer than the average for all recessions since World War II, according to the committee of economists responsible for dating the nation’s business cycles.
In declaring that the economy has been in a downturn for almost 12 months, the National Bureau of Economic Research confirmed what many Americans had already been feeling in their bones. But private forecasters warned that this downturn was likely to set a new postwar record for length and likely to be more painful than any recession since 1980 and 1981.
The Dow Jones Industrial average plummeted 443.80 points (5.03%) to 8,385.24 at 1807 gmt after five winning sessions. The techheavy Nasdaq slid 94.57 points (6.16%) to 1,441.00 and the broadmarket Standard & Poor’s 500 index dropped 53.86 points (6.01%) to 842.38. Part of the drop may have reflected profit-taking after last week’s surge in stock prices,but it also came in response to new data showing that manufacturing activity dropped to its lowest point in 26 years.
Both the chairman of the Federal Reserve, Ben S Bernanke, and the Treasury secretary, Henry M Paulson Jr, vowed to use all the tools at their disposal to restore a measure of normalcy to the economy.
Bernanke, speaking to business leaders in Austin, Tex, said it was “certainly feasible” to reduce the Fed’s benchmark overnight lending rate below its current target of 1%, signaling that the Central bank would lower the rate at its next policy meeting in two weeks.
Investors reacted to Bernanke’s remarks by pouring money into longer-term Treasury bonds, which briefly pushed already-low yields on 10-year and 30-year Treasuries to new record lows. Investors appeared to be reacting mainly to the clear signal from Bernanke that the Fed was preparing to pump money into the economy by buying up longer-term bonds.
Paulson, in a speech in Washington on Monday, vowed to look at new ways to use the $700 billion bailout fund that Congress approved in October. In Congress, Democratic leaders are drawing up a huge new fiscal stimulus plan that could total more than $500 billion. Democrats said they planned to have the measure ready as soon as Congress convened with a strengthened Democratic majority in January. Meanwhile, Democrats could take up legislation next week that would provide financial assistance to the automobile industry.
President Bush, increasingly the odd man out in the last weeks of his term, said his administration would do whatever was necessary to safeguard the system.
Many analysts said they saw no signs yet that the economy was nearing a bottom. American consumers, who for decades have been the country’s tireless source of growth when all else failed, have cut back on their spending more sharply than at any time since the early 1980s.
In officially declaring that the current recession began in December 2007, the National Bureau of Economic Research paid little heed to the fact that the nation’s GDP product actually expanded slightly in the first and second quarters of 2008.
Source: Agencies
In declaring that the economy has been in a downturn for almost 12 months, the National Bureau of Economic Research confirmed what many Americans had already been feeling in their bones. But private forecasters warned that this downturn was likely to set a new postwar record for length and likely to be more painful than any recession since 1980 and 1981.
The Dow Jones Industrial average plummeted 443.80 points (5.03%) to 8,385.24 at 1807 gmt after five winning sessions. The techheavy Nasdaq slid 94.57 points (6.16%) to 1,441.00 and the broadmarket Standard & Poor’s 500 index dropped 53.86 points (6.01%) to 842.38. Part of the drop may have reflected profit-taking after last week’s surge in stock prices,but it also came in response to new data showing that manufacturing activity dropped to its lowest point in 26 years.
Both the chairman of the Federal Reserve, Ben S Bernanke, and the Treasury secretary, Henry M Paulson Jr, vowed to use all the tools at their disposal to restore a measure of normalcy to the economy.
Bernanke, speaking to business leaders in Austin, Tex, said it was “certainly feasible” to reduce the Fed’s benchmark overnight lending rate below its current target of 1%, signaling that the Central bank would lower the rate at its next policy meeting in two weeks.
Investors reacted to Bernanke’s remarks by pouring money into longer-term Treasury bonds, which briefly pushed already-low yields on 10-year and 30-year Treasuries to new record lows. Investors appeared to be reacting mainly to the clear signal from Bernanke that the Fed was preparing to pump money into the economy by buying up longer-term bonds.
Paulson, in a speech in Washington on Monday, vowed to look at new ways to use the $700 billion bailout fund that Congress approved in October. In Congress, Democratic leaders are drawing up a huge new fiscal stimulus plan that could total more than $500 billion. Democrats said they planned to have the measure ready as soon as Congress convened with a strengthened Democratic majority in January. Meanwhile, Democrats could take up legislation next week that would provide financial assistance to the automobile industry.
President Bush, increasingly the odd man out in the last weeks of his term, said his administration would do whatever was necessary to safeguard the system.
Many analysts said they saw no signs yet that the economy was nearing a bottom. American consumers, who for decades have been the country’s tireless source of growth when all else failed, have cut back on their spending more sharply than at any time since the early 1980s.
In officially declaring that the current recession began in December 2007, the National Bureau of Economic Research paid little heed to the fact that the nation’s GDP product actually expanded slightly in the first and second quarters of 2008.
Source: Agencies
Monday, November 24, 2008
Troubled banking giant Citigroup gets bail out
The US government will inject $20 billion into troubled banking giant Citigroup and will provide a guarantee of $306 billion to the financial firm.
"The US government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital," the Federal Reserve said in a statement.
As per the rescue plan, the treasury would invest $ 20 billion in Citigroup from the Troubled Asset Relief Programme in exchange for preferred stock.
Besides, the Treasury and the Federal Deposit Insurance Corporation (FDIC) would provide protection against $ 306 billion of toxic loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet, the statement added.
"As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan," the release said.
The move comes close on the heels of the sliding 60 per cent fall in the share price of Citigroup last week.
"Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program," the Federal Reserve added.
The Federal Reserve asserted that "we will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks."
Once the world's most valued bank Citigroup, headed by NRI banker Vikram Pandit whose own job is reportedly under attack, had over 3,75,000 employees at the end of last year and it aims to trim it down to below three lakh, as part of efforts to cut costs and help the crisis-ridden bank return to normalcy.
Close to 25,000 jobs have already been axed so far this year.
The financial crisis, that began 15 months ago, is now taking toll and recent months have seen government taking over quasi-public mortgage firms Fannie Mae and Freddie Mae, bankruptcy of Lehman Brothers, sale of Merrill Lynch, rescue of American International Group among others.
"The US government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital," the Federal Reserve said in a statement.
As per the rescue plan, the treasury would invest $ 20 billion in Citigroup from the Troubled Asset Relief Programme in exchange for preferred stock.
Besides, the Treasury and the Federal Deposit Insurance Corporation (FDIC) would provide protection against $ 306 billion of toxic loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet, the statement added.
"As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan," the release said.
The move comes close on the heels of the sliding 60 per cent fall in the share price of Citigroup last week.
"Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program," the Federal Reserve added.
The Federal Reserve asserted that "we will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks."
Once the world's most valued bank Citigroup, headed by NRI banker Vikram Pandit whose own job is reportedly under attack, had over 3,75,000 employees at the end of last year and it aims to trim it down to below three lakh, as part of efforts to cut costs and help the crisis-ridden bank return to normalcy.
Close to 25,000 jobs have already been axed so far this year.
The financial crisis, that began 15 months ago, is now taking toll and recent months have seen government taking over quasi-public mortgage firms Fannie Mae and Freddie Mae, bankruptcy of Lehman Brothers, sale of Merrill Lynch, rescue of American International Group among others.
Saturday, November 22, 2008
U.S. Government may rescue Citigroup
The U.S. government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank’s stock-market value in three days, according to investors and analysts.
Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.
“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”
One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.
The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the U.S. budget.
To read more...click on the link below
http://www.bloomberg.com/apps/news?pid=20601087&sid=acxKsnU5HOAI&refer=home
Citigroup’s $2 trillion of assets dwarfs companies such as American International Group Inc. that got support from the U.S. government this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.
“Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”
One option is for the Federal Reserve and U.S. Treasury to create a special vehicle to purchase bad assets from Citi. The Fed has already erected several such funds, such as the Commercial Paper Funding Facility, to provide liquidity to the financial system. Typically, the Treasury would provide some first-loss equity or insurance fee, such as $50 billion provided to the CPFF, to protect the central bank and give the fiscal authority a stake.
The arrangement allows the Fed to leverage the money provided by the Treasury with loans, enabling the purchase of assets worth a multiple of the money. Funding the purchases with loans makes them less onerous to the U.S. budget.
To read more...click on the link below
http://www.bloomberg.com/apps/news?pid=20601087&sid=acxKsnU5HOAI&refer=home
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