Fed Chair Jerome Powell

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Re: Fed Chair Jerome Powell

Post by Isgrimnur »

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.
So it was a 7-2 vote. I'm not up on my Fed roster to know the leanings of all involved.
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Re: Fed Chair Jerome Powell

Post by malchior »

El Guapo wrote: Wed Jul 31, 2019 2:23 pm
malchior wrote: Wed Jul 31, 2019 2:18 pm Trump complained about rates and quantitative easing and they announced changes to both. It will be seen as a stain on the independence of the Fed. To be fair Powell is in a no win situation. I think it would have been better to do one or the other (cut rate or stop shrinking the balance sheet) but both makes it look like Trump put his thumb on them directly. Just another norm fallen.
There is a reasonable case for doing both given signs of weakening in the economy though, right? It's tricky because if Powell thought that that was the right course, it wouldn't be great to *not* do that just to avoid the bad optics, right?

So it's hard to know whether this is something to be concerned about or not.
That is the no win situation of it. However, is it better to not appear to be under Trump's thumb? I'd say 100% yes. Given that 'math' I'm hoping that this was the right decision and not him smashing norms. (Aside from him weighing in at all - something last done...by Nixon).
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Re: Fed Chair Jerome Powell

Post by El Guapo »

malchior wrote: Wed Jul 31, 2019 2:26 pm
El Guapo wrote: Wed Jul 31, 2019 2:23 pm
malchior wrote: Wed Jul 31, 2019 2:18 pm Trump complained about rates and quantitative easing and they announced changes to both. It will be seen as a stain on the independence of the Fed. To be fair Powell is in a no win situation. I think it would have been better to do one or the other (cut rate or stop shrinking the balance sheet) but both makes it look like Trump put his thumb on them directly. Just another norm fallen.
There is a reasonable case for doing both given signs of weakening in the economy though, right? It's tricky because if Powell thought that that was the right course, it wouldn't be great to *not* do that just to avoid the bad optics, right?

So it's hard to know whether this is something to be concerned about or not.
That is the no win situation of it. However, is it better to not appear to be under Trump's thumb? I'd say 100% yes. Given that 'math' I'm hoping that this was the right decision and not him smashing norms. (Aside from him weighing in at all - something last done...by Nixon).
But in theory if this is the right decision economics wise and they didn't do it, there would be a reasonable risk of people losing jobs, livelihoods, and lives. It seems at least defensible to prioritize that over bad optics. Especially when if they didn't do what they thought they should do because of what Trump said (even if they went against Trump's wishes), it seems like that *is* basing their decision on politics and as a result of Trump's influence, which is exactly the harm that you're trying to avoid.
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Re: Fed Chair Jerome Powell

Post by malchior »

Isgrimnur wrote: Wed Jul 31, 2019 2:25 pm
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.
So it was a 7-2 vote. I'm not up on my Fed roster to know the leanings of all involved.
Those were the 2nd and 3rd no vote ever during the Powell 'run' to put it a little in perspective but no's aren't that unusual from what I remember. I don't think that is a big factor. Plus it isn't transparent what the no's were about. Was it one thing, was it both, was it multiple things? They don't write a dissent that gives you insight into the decision. They might speak about it but probably won't.
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Re: Fed Chair Jerome Powell

Post by malchior »

El Guapo wrote: Wed Jul 31, 2019 2:28 pm
malchior wrote: Wed Jul 31, 2019 2:26 pm
El Guapo wrote: Wed Jul 31, 2019 2:23 pm
malchior wrote: Wed Jul 31, 2019 2:18 pm Trump complained about rates and quantitative easing and they announced changes to both. It will be seen as a stain on the independence of the Fed. To be fair Powell is in a no win situation. I think it would have been better to do one or the other (cut rate or stop shrinking the balance sheet) but both makes it look like Trump put his thumb on them directly. Just another norm fallen.
There is a reasonable case for doing both given signs of weakening in the economy though, right? It's tricky because if Powell thought that that was the right course, it wouldn't be great to *not* do that just to avoid the bad optics, right?

So it's hard to know whether this is something to be concerned about or not.
That is the no win situation of it. However, is it better to not appear to be under Trump's thumb? I'd say 100% yes. Given that 'math' I'm hoping that this was the right decision and not him smashing norms. (Aside from him weighing in at all - something last done...by Nixon).
But in theory if this is the right decision economics wise and they didn't do it, there would be a reasonable risk of people losing jobs, livelihoods, and lives. It seems at least defensible to prioritize that over bad optics. Especially when if they didn't do what they thought they should do because of what Trump said (even if they went against Trump's wishes), it seems like that *is* basing their decision on politics and as a result of Trump's influence, which is exactly the harm that you're trying to avoid.
Sure but they ended the balance sheet shrink *2 months* early. Is 2 more months buying back bonds really going to crack the economy? That is the part that I think will really shake people potentially. Both for the reason that the market may wonder if the Fed is being corrupted by Trump's incompetence or that the Fed sees macro problems. We'll see how the markets shake out over the next few days but it is worrying to some extent.

Edit: One more case popped in my mind - let's say Trump got wind of how the vote went then he could have tweeted to make it appear he is the puppet master. That'd be pretty ok in my mind as long as that eventually 'leaks' out.
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Re: Fed Chair Jerome Powell

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El Guapo wrote: Wed Jul 31, 2019 2:23 pm
malchior wrote: Wed Jul 31, 2019 2:18 pm Trump complained about rates and quantitative easing and they announced changes to both. It will be seen as a stain on the independence of the Fed. To be fair Powell is in a no win situation. I think it would have been better to do one or the other (cut rate or stop shrinking the balance sheet) but both makes it look like Trump put his thumb on them directly. Just another norm fallen.
There is a reasonable case for doing both given signs of weakening in the economy though, right?
Not when rates are so low that the Fed already has very little ammo for when the recession finally comes. Companies are sitting on hoards of cash; they don't need to borrow to expand, and even if they did, shaving a low rate by a little more won't make much difference. Better to keep their powder dry for when it's really needed.
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Re: Fed Chair Jerome Powell

Post by LordMortis »

Kraken wrote: Wed Jul 31, 2019 4:45 pm
El Guapo wrote: Wed Jul 31, 2019 2:23 pm
malchior wrote: Wed Jul 31, 2019 2:18 pm Trump complained about rates and quantitative easing and they announced changes to both. It will be seen as a stain on the independence of the Fed. To be fair Powell is in a no win situation. I think it would have been better to do one or the other (cut rate or stop shrinking the balance sheet) but both makes it look like Trump put his thumb on them directly. Just another norm fallen.
There is a reasonable case for doing both given signs of weakening in the economy though, right?
Not when rates are so low that the Fed already has very little ammo for when the recession finally comes. Companies are sitting on hoards of cash; they don't need to borrow to expand, and even if they did, shaving a low rate by a little more won't make much difference. Better to keep their powder dry for when it's really needed.
I don't think companies are sitting on hoards of cash. As we have been talking about in the OOIC thread, I think companies are leveraging their value with increased debt and we've spent the last three years giving away the safety net we were just starting to build in reaction to 2008. Rate cutting is likely the right call but how much can you can cut rates? How much more money can you borrow/print? Instead of safety net we have this:

https://www.thebalance.com/national-deb ... ts-3306287

How POtuS can say this is the greatest economy evar is beyond me. That so many can agree with him is disgusting.
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Re: Fed Chair Jerome Powell

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Association for Financial Professionals
During the second quarter of 2019, U.S. companies remained apprehensive about the economy. Similar to last quarter, they continued to build cash and short-term investment holdings, according to the AFP Corporate Cash Indicators®, (CCI) a quarterly survey of senior corporate treasury and finance executives conducted by the Association for Financial Professionals.

The latest CCI's quarter-over-quarter index reading increased 5 points to +8, signaling that more organizations were accumulating cash reserves in the second quarter. The year-over year indicator decreased two points from +13 to +11.
...
Each quarter, AFP asks select members representing a broad cross section of U.S. businesses the same questions: whether their company's short-term holdings increased or decreased in the past year and past quarter; whether investment selections for those holdings changed; and whether they expect cash holdings to increase or decrease in the coming quarter. AFP member companies have agreed to participate in this ongoing study on a long-term basis.

Participants manage their companies' cash and short-term investment portfolios and are fully aware of their companies' liquidity needs and business strategies. Since corporate decisions to grow/shrink the size of cash and short-term investment portfolios reflect their business outlook and direction, changes reported by this broad group of companies are indicators of economic activity.
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Re: Fed Chair Jerome Powell

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I guess I don't consider "being liquid" to mean much when your debt is high.

From April:

https://www2.deloitte.com/insights/us/e ... evels.html
Of size, ratios, and intent

Growth in corporate leverage is not unique to this economic recovery; it happened in previous recoveries as well. The current rise in leverage, however, is different in some respects from the recoveries of 1992–2000 and 2002–2007.

First, although the debt growth rate during this recovery has not been the fastest among the three recoveries since 1991, the sheer volume of debt accumulated is notable. Between 2010 and 2017, US nonfinancial corporations increased their leverage by almost US$3 trillion, much more than in the previous two recoveries (US$2.1 trillion in 1992–2000 and US$1.5 trillion in 2002–2007). And this time, debt quality isn’t as good as in the last two recoveries.

Second, the current recovery’s rise in debt has been accompanied by deterioration in a few key financial ratios. In particular, among the top 1,000 US nonfinancial companies by market value (in January 2019), the net debt-to-EBITDA ratio and their interest coverage ratio—both of which are indicators of the ability to pay debt back—have both deteriorated during the current recovery. During the previous two recoveries, in contrast, these ratios improved for the same group of 1,000 companies.

Third, IT and communications services are leading the debt binge. In part, this reflects their growing importance in the US economy. Along with their higher leverage, however, these sectors are experiencing greater deterioration in the key financial ratios mentioned above. The energy sector, especially, stands out for its rising leverage and deteriorating net debt-to-EBITDA and interest coverage ratios. In a sector whose performance depends on volatile prices, this is something to think about.

All may still be well if the economic recovery continues and companies reap growing returns from the investments they have made during this recovery. That, however, brings us to the question of what companies have been doing with their borrowed money. Have they invested in efforts to grow and improve their operations? Or has the borrowed money been spent on share buybacks and dividends? While short-term concerns about debt may wither if the economic outlook improves quickly and interest rates remain in check, a lack of prudence in using borrowed funds may not augur well for businesses in the medium to long term. Unless they choose wisely, they may lose out on an opportunity to boost productivity through increased investment, which is important not only to individual companies but to the US economy overall.
Concerns at the close of 2018

https://www.marketwatch.com/story/these ... 2018-11-29
he likes of former Fed Chairwoman Janet Yellen and the International Monetary Fund have recently voiced concerns over the ballooning market for leveraged loans, in essence, sub-investment grade debt with floating interest rates. Investors started to pour into the $1.3 trillion-sized market to guard against the corrosive impact of the Federal Reserve’s hiking on the bond market, but the lack of written protections for buyers is worrying credit firms who warn that investors could take steep losses when the next downturn in the credit cycle arrives.

“Traditionally, leveraged loans would be accompanied by a range of covenants designed to limit the financial risk issuers could take. So far in this cycle, the majority of leveraged loans that have been issued contain weakened protections,” said Marrinan.
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Re: Fed Chair Jerome Powell

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The cut is due to weak manufacturing and business investment data they say? But that 2017 tax cut was supposed to power those sectors into the stratosphere? hmmmmmm
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Re: Fed Chair Jerome Powell

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Rate cut
Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.
...
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent.
...
Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles.

Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.
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Re: Fed Chair Jerome Powell

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They're making it really tempting to refinance a mortgage on my condo I just bought in April....
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Re: Fed Chair Jerome Powell

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I guess I'll save a few bucks a month on my HELOC, maybe enough to pay the house off a month earlier. Apart from that, my borrowing years are mostly behind me. Half of my CDs came up for renewal in May and June; I locked in rates ranging from 2.35 to 3.1% for terms ranging from 3-5 years. Sadly, rates will be lower when the other ones mature in November thru January.

Most of our retirement money is in stock index funds, but my Roth CDs are my safe money.
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Re: Fed Chair Jerome Powell

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Just refinanced yesterday. Bought our house last OCtober @ 4.65%... Refi'd down to 3.5% 11 months later
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Re: Fed Chair Jerome Powell

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I need someone smart to explain to me why this is is fine and there's no need to panic :
The New York Federal Reserve Bank said Friday it will inject billions into the US financial plumbing on a daily basis for the next three weeks in an effort to prevent a spike in short-term interest rates.

The Fed will offer up to $75 billion a day in repurchase agreements -- exchanging secure assets for cash for very short periods -- through October 10, it said in a statement.
A day?

What's up?
Economists say an array of conditions converged to dry up liquidity in the banking system -- including quarterly corporate tax payments and a surge in government debt sold to investors, which drained cash out of banks.
And this doesn't normally happen?
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Re: Fed Chair Jerome Powell

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Update: $105 billion was injected last night.

...
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Re: Fed Chair Jerome Powell

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A one time injection happens occasionally. When it happens multiple times, it's a bad sign.
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Re: Fed Chair Jerome Powell

Post by Smoove_B »

See my post just above it, from 9/20:
The Fed will offer up to $75 billion a day in repurchase agreements -- exchanging secure assets for cash for very short periods -- through October 10, it said in a statement.
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Re: Fed Chair Jerome Powell

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Smoove_B wrote: Tue Sep 24, 2019 11:10 am See my post just above it, from 9/20:
The Fed will offer up to $75 billion a day in repurchase agreements -- exchanging secure assets for cash for very short periods -- through October 10, it said in a statement.
Right. That was my point :) Not only that, they went over the $75 billion.
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Re: Fed Chair Jerome Powell

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Ah, I took your comment as just reading my most current post. Resume panic! :D
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Re: Fed Chair Jerome Powell

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One explanation

https://fortune.com/2019/09/23/repo-mar ... unnerving/
The repo market seized up last week, with median repurchase rates skyrocketing from their usual band of 2.00-2.25% to 2.46% on Monday, and 5.25% on Tuesday. Keep in mind, that’s the median rate. Some repo rates were as high as 9%, more than quadruple the Federal Reserve’s own target rate, which usually puts a cap on how high Treasury repo rates could climb.

An unlucky confluence of events, including an exceptionally large demand for cash from U.S. companies that needed to pay their corporate tax bills, sucked a lot of the available cash out of the financial markets. What happened last week was any counter-party in need of cash, and only holding collateral like Treasuries, agreed to pay the much higher going repo rates. That’s supply and demand, plain and simple, and it mirrors what happened in certain repo markets in 2007 before the housing crash and the Great Recession that followed.

So, what happened to the usual abundance of cash and liquid securities that powers the trillion-dollar repo market?

It’s been slowly evaporating, actually, for some time, since the Fed ended five years ago the policy of quantitative easing (QE), its maneuver to buy highly liquid bank securities to boost overall bank reserves. The thinking (and hope) of that controversial policy was that the increased liquidity would encourage banks to lend more and spur economic growth at the depths of the downturn.

Those kind of accommodative actions have been over for some time now, and total bank reserves have steadily been decreasing. They peaked in August, 2014, and are now close to where reserves were in 2011. One principle reason for that: an elevated level of government debt issuances in the past four years have sucked reserves out of the financial system.

When a squeeze like the one last week occurs it’s a clear indicator that there aren’t enough reserves in the financial system for repo markets to clear at the Fed’s preferred level—in central bank parlance, the “target rate,” or the Fed Funds rate. That explains why the central bank has been engaged in open market operations to inject reserves back into the banking system through overnight purchases of Treasuries.
Put otherwise, the Fed is back where it was roughly a decade ago, effectively buying U.S. Treasuries from banks on an indefinite basis. But the difference this time? There’s no financial crisis in sight, just the uncomfortable fact that private capital markets once again need public support.
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Re: Fed Chair Jerome Powell

Post by LawBeefaroni »

This is not like they're printing $75B in new money every day. They are essentially loaning $75B overnight (or for a few days, not clear on that yet) on a daily basis. They're creating liquidity, not new money.

Details on how it works here.
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Re: Fed Chair Jerome Powell

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CNBC
The Federal Reserve is widely expected to deliver a third straight interest-rate cut on Wednesday. Nearly 80% of the fund managers, economists and strategists surveyed by CNBC’s Steve Liesman expect a quarter point rate reduction this week. However, 63% believe the Fed will pause cutting rates for the remainder of the year. The respondents believe the next cut will come in February, on average.

All eyes will be on chairman Jerome Powell’s signal on where the Fed stands in the easing cycle. The Federal Open Market Committee announcement is scheduled for 2:00 p.m. ET, followed by a press conference with Powell at 2:30 p.m. ET.
...
The central bank’s rate decision will come hours after the release of U.S. GDP data which is expected to show a further slowdown in the third quarter.
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Re: Fed Chair Jerome Powell

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Each previous 0.25% cut saved me $10/mo on my HELOC. Let the good times roll!
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Re: Fed Chair Jerome Powell

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CNBC
U.S. gross domestic product — the broadest measure of the U.S. economy — grew faster than expected in the third quarter, but slowed slightly as business investment continued to decline.

The Commerce Department said Wednesday that economic activity grew at an annualized rate of 1.9% in the third quarter, down slightly from the 2% pace in the second quarter. Economists polled by Dow Jones had expected the first look at third-quarter economic growth to come in at 1.6%.

The better-than-expected data was the result of continued consumer spending as well as government expenditures, the department said. Personal consumption expenditures, a gauge of spending by American households, rose at a 2.9% annualized rate while government spending grew at a 2% rate.
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Re: Fed Chair Jerome Powell

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NPR
The Federal Reserve cut interest rates by a quarter percentage point Wednesday in an effort to support an economy that continues to tap the brakes.

In announcing the move, the central bank pointed to weak business investment, which has been a drag on the economy, even as consumer spending has held up relatively well.

This is the Fed's third interest rate cut since July, and it brings the federal funds rate target down to a range of 1.5% to 1.75%. Falling interest rates have contributed to a modest rebound in the housing market and big-ticket consumer purchases. But they've done little so far to boost business investment.
...
Two members of the rate-setting committee — Esther George and Eric Rosengren — voted against the cut, preferring to leave rates unchanged.
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Re: Fed Chair Jerome Powell

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MarketWatch
The Federal Reserve’s ongoing efforts to shore up the short-term “repo” lending markets have begun to rattle some market experts.

The New York Federal Reserve has spent hundreds of billions of dollars to keep credit flowing through short term money markets since mid-September when a shortage of liquidity caused a spike in overnight borrowing rates.

But as the Fed’s interventions have entered a third month, concerns about the market’s dependence on its daily doses of liquidity have grown.
...
“The Fed really hasn’t figured out the problem,” said Bryce Doty, a senior portfolio manager at Sit Fixed Income in Minneapolis. “But they kind of have created their own problem.”

By that, Doty meant the Fed’s rescue operations have worked in terms of supplying banks with quick and cheap funding, but less so when it comes to luring them back to funding each other.

“The big banks are just hoarding cash,” he said. “They told the Fed they have more than enough cash in excess reserves to meet regulatory issues, but they prefer having money at the Fed where they can still earn 1.55%, rather than in the repo market.”
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Re: Fed Chair Jerome Powell

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CNN
The Federal Reserve held interest rates steady at its December meeting on Wednesday, halting a series of rate cuts that lifted markets and countered recession fears amid ongoing trade uncertainty.

Policymakers unanimously agreed to leave rates hovering between 1.5% and 1.75%, describing the policy decision as "appropriate" to help prolong the nation's economic expansion, now in its 11th year.

The widely expected move falls in line with market expectations as the Fed has signaled it plans to move into an extended pause as it watches to see how the US economy evolves.

Thirteen of the 17 participants on the Federal Open Market Committee's policy-setting body now anticipate keeping interest rates level in 2020, according to the central bank's updated forecast. Only four members predicted that rates may need to be raised one notch higher.
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Re: Fed Chair Jerome Powell

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CNBC
The Federal Reserve held interest rates steady at its meeting this week and tweaked its post-meeting statement to reflect what appears to be a stronger commitment to nudge up inflation.

Meeting market expectations, the central bank’s Federal Open Market Committee said Wednesday it will hold its benchmark funds rate between 1.5% to 1.75%, a range where it has been since the latter part of last year.
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Re: Fed Chair Jerome Powell

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MarketWatch
Federal Reserve Chairman Jerome Powell said Wednesday the central bank would fight the next economic downturn by buying large amounts of government debt to drive down long-term interest rates, a strategy that has been dubbed quantitative easing, or QE.

In testimony before the Senate Banking Committee, Powell said the Fed had two recession-fighting tools; buying government bonds, known as QE, and communicating clearly with markets about interest-rate policy, routinely considered as “forward guidance.”

“We will use those tools — I believe we will use them aggressively should the need arise to do so,” Powell said.
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Re: Fed Chair Jerome Powell

Post by Isgrimnur »

Federal Reserve
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
It's almost as if people are the problem.
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Kraken
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Re: Fed Chair Jerome Powell

Post by Kraken »

We liquidated our inherited 401k today. It's lost $12,000 since the first of the year, $3,000 of that in just the past three weeks. This is consistent with my overall "buy high, sell low" strategy. The account's administrator opined that "volatility" is going to continue for at least the next six months so there's little point in waiting for it to recover, especially since we had to take a minimum distribution before the end of the year anyway. "If you need the cash now" (we do, for a home improvement) "you might as well take the money and run." Without that cash, I would've had to use our variable-rate HELOC to pay for this job, and that's not good with interest rates rising so dramatically.
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