Tag: Federal Reserve

Federal Reserve Minutes From April Suggest Rates US Rates Will Be Lower For Longer

From the Fed: Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households’ real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment re-mains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommo-dation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual man-date. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 per-cent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissi-pate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maxi-mum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate. In de-termining how long to maintain this target range, the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2 percent inflation. This assessment will take into ac-count a wide range of information, including measures of labor market conditions, indica-tors of inflation pressures and inflation expec-tations, and readings on financial and interna-tional developments. The Committee antici-pates that it will be appropriate to raise the  target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that infla-tion will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing pol-icy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. When the Committee decides to begin to re-move policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run

Federal Reserve Fines Six Major Banking Organisations $1.8 billion For Rigging FX Markets

The Federal Reserve on Wednesday announced it will impose fines totaling more than $1.8 billion against six major banking organizations for their unsafe and unsound practices in the foreign exchange (FX) markets. The fines, among the largest ever assessed by the Federal Reserve, include: $342 million each for UBS AG, Barclays Bank PLC, Citigroup Inc., and JPMorgan Chase & Co.; $274 million for Royal Bank of Scotland PLC (RBS); and $205 million for Bank of America Corporation. The Federal Reserve also issued cease and desist orders requiring the firms to improve their policies and procedures for oversight and controls over activities in the wholesale FX and similar types of markets.

The Federal Reserve is requiring the firms to correct deficiencies in their oversight and internal controls over traders who buy and sell U.S. dollars and foreign currencies for the organizations’ own accounts and for customers. As a result of these deficient policies and procedures, the organizations engaged in unsafe and unsound conduct by failing to detect and address improper actions by their traders. These actions included the disclosure in electronic chatrooms of confidential customer information to traders at other organizations. Five of the banks failed to detect and address illegal agreements among traders to manipulate benchmark currency prices. Bank of America failed to detect and address conduct by traders who discussed the possibility of entering into similar agreements to manipulate prices. In addition, the Federal Reserve found UBS, Citigroup, JPMorgan Chase, and Barclays engaged in unsafe and unsound conduct in FX sales, including conduct relating to how the organizations disclosed to customers the methods for determining price quotes.

The Federal Reserve is requiring the six organizations to improve their senior management oversight, internal controls, risk management, and internal audit policies and procedures for their FX activities and for similar kinds of trading activities and is requiring four of the organizations to improve controls over their sales practices. The Federal Reserve is also requiring all six organizations to cooperate in its investigation of the individuals involved in the conduct underlying these enforcement actions and is prohibiting the organizations from re-employing or otherwise engaging individuals who were involved in unsafe and unsound conduct.

The Federal Reserve is taking action against UBS, Barclays, Citigroup, JPMorgan Chase, and RBS concurrently with the Department of Justice’s criminal charges against these five organizations related to misconduct in the FX markets. Bank of America was not part of the actions taken by the Department of Justice and has not been charged by the Department of Justice in this matter.

The Connecticut Department of Banking has joined the cease and desist provisions of the Federal Reserve’s action against UBS, which has a branch located in Stamford, Connecticut. The New York Department of Financial Services has taken a separate action against Barclays and its New York branch based on FX-related conduct.

US Rates To Stay Low, Thanks To Dollar – Moody’s

According to Moody’s latest, conceivably, dollar exchange rate appreciation might substitute for a fed funds rate hike. All else the same, the need for a higher fed funds rate recedes as the dollar exchange rate strengthens. A persistently strong dollar is likely to weaken the pricing power of US businesses and labor. Since bottoming in the summer of 2011, the US dollar has soared higher by a cumulative 29% against a basket of major foreign currencies. In the context of an economic upturn, the dollar’s ongoing ascent is the steepest vis-a-vis major foreign currencies since the cumulative 31% surge of the five years ended 2000, or when core PCE price index inflation grew by merely 1.6% annualized, on average, notwithstanding real GDP’s comparably measured growth rate of a scintillating 4.3%.

MoodyMar2015Lately, the strong dollar has put downward pressure on the prices of US exports and imports. February 2015’s -5.9% annual plunge by the US export price index was the deepest such setback on record for a mature US economic recovery. The dollar’s earlier surge of the five-years-ended 2000 saw the US export price index slide by -0.8% annualized, on average. Moreover, February’s price index for US imports excluding petroleum products fell by -1.8% annually. Expect more of the same according to the -1.3% average annualized drop by the US core import price index during the five-years-ended 2000.