Chillin' out till it needs to be funded
Yesterday’s Fed Statement is largely a repeat of the situation it reported in March 2013 when Chairman Ben Bernanke met the press later and did not let on the Fed’s wavering on maintaining the $85 B in purchases of Treasuries and MBS securities, affirming the Central Bank’s commitment to maintaining the ‘QE3’ liquidity till at least the end of the year.
The Fed however after showing up as wilfully debating the issue of very low interest rates worried by the low inflation and yields in the minutes of the March meeting, followed the market expectations even while debating Ben Bernanke’s succession in January 2014 and tabled plans to reduce the program amounts for MBS and Treasury purchases at least for open debate but was waylaid by deeper uncertainity
in the Economic climate not entirely along expected lines from the sequesteration
The April 30- May 1 meeting of the Fed therefore introduced only a slight change in the released statement yesterday, registering that the Fed may as seen fit, increase or reduce program amounts for the two programs till the desired targets of employment in line with price stability are achieved. Thus the Fed now looks to an extended innings with liquidity as a possible option if US recovery indeed lags behind again and Equity markets recede too deep on threat of reduction in the over liquidity imposed on the economies and the global business.
The Fed also affirmed as in March that it will continue to hold interest rates below 0.25% till the unemployment rate is above 6 1/2%
ECB in contrast seemed pre decided again on increasing the environment of liquidity and proceeed to cut rates from its ever lowest 0.75% to 0.50% today keeping deposit rates unchanged As usual his press conference continues to focus on making the media understand the difference of being ECB and the limit of monetarist intervention that ECB policy can bring to the Euro zone.
While monthly PMIs have improved across Europe in non Euro countries in both core Euro countries and peripherals like Germany and Italy PMI data shows a deeper recession outlook than expected with scores of barely 45 however the encouragement provided by the ECB took the currency to new highs as the USD proceeded to weaker levels without much resistance and breaking Yen’s forced strength on the Dollar as per the established direction decided by currency markets, making it likely that the Euro economies are caught in a hirlpool of their strong currency even as Debt GDP ratios continue to rise thru 2014 the lower interest rates close to b eing as inefficient in providing economic relief as in other global economies.
Most of the debt agreements are in the process of being restructured in Europe and Austerity freshly agreed to in the new contract is expected to be further diluted in practice with both Enrico Letta in Italy and Hollande in France lobbying for more growth oriented plans from Brussels while Merkel heads for the polls
However a critical element of growth processes is expansion of the Economy also thru a weaker currency which leg would in the Euro trade remain instead that of growing strength vs the Dollar letting US lead the recovery tab while the futility of limited growth and liquidity fells thmis side of the pond anyway despite a living new curency mechanism that goes through the struggle to integrate in banking economy and in the political process
Jobs Friday could again surprise negatively if one goes by the ADP private payrolls report of Wednesday but the larger signs in the US Economy are that corporate America is ignoring the sequestration circuses with Auto sales denoting recovery for the three large US carmakers and Japanese imports including the Honda Civic coming back