David Kirkpatrick

May 21, 2009

Fed sees longer recession

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:50 pm

I hate to always blog about tough financial news or to dispute what I see as overly rosy near-term projections, but I think reality should trump blind wishes. Particularly when those wishes will most likely be dashed in short order.

In an interview I was asked my operating philosophy of life and my response was “optimistic pessimism,” which for me is a succinct way of saying I hope for the best and plan for the worst. Optimistic pessimism is a very prudent way to view the world’s economy in both bad and good times.

From the link:

Federal Reserve officials fear the recession is worse than recent projections and that the recovery could drag on for two years as unemployment continues to edge higher, according to the minutes from the Fed’s April meeting.

Some members noted that it might be necessary to raise the amounts of mortgage and Treasury securities purchased above the $1.75 trillion that the government has already committed to buying.

“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” according to the minutes of the April 28-29 meeting.

The buying programs were put in place to create liquidity for these types of securities created from loans, and to serve as a catalyst for lending in an effort to thaw frozen credit markets.

The Federal Open Market Committee minutes are always released three weeks after the meeting is held. 

As widely expected, the Fed left a key interest rate alone at that meeting, leaving the target federal funds rate at a range near zero. 

Fed officials have said rates will stay “exceptionally low…for an extended period,” which some analysts have interpreted as meaning possibly into next year.

The economy looked a little brighter three weeks ago when Fed officials released a statement at the conclusion of their two-day meeting. Things are less rosy now.

March 23, 2009

Fed buying up additional $1T-plus in securities

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 4:05 pm

The sheer hugeness of all the dollar figures being thrown around by the Fed, Treasury and Congress is staggering. Hopefully this will work. If nothing else, it is truly unprecedented.

From the link:

The Federal Reserve’s surprise announcement Wednesday that it would purchase more than $1 trillion in Treasury securities and mortgage bonds in hopes of sparking greater economic activity shows that Chairman Ben Bernanke is working hard to keep his pledge to do whatever it takes to reverse the nation’s deep recession.

The Fed’s rate-setting Federal Open Market Committee ended a two-day meeting with the announcement that it would leave its benchmark federal funds rate near zero. That was expected. Unexpected was word that the Fed would now aggressively purchase assets to get money flowing across the broader economy.

“It’s a decision by the committee to go all out,” said Laurence Meyer, a former Fed governor from 1996 to 2002, joking that “every move these days is historic and unprecedented.”

March 11, 2009

Whither the Fed goest?

Who really knows?

From the link:

The Fed has already used its main tool to the limit, having pushed its target interest rate, the federal-funds rate, to near zero. It already has ramped up lending and asset purchases. But it could decide to push harder by, for instance, purchasing long-term Treasury securities or increasing its purchases of debt issued or guaranteed by Fannie Mae and Freddie Mac. It is unclear whether the Fed will decide to take new steps at its meetings on March 17 and 18.

Treasury purchases could help bring down long-term interest rates by pushing up the price of government bonds and thus pushing down their yields. That, in turn, could bring down other long-term rates because Treasury debt is a benchmark for many loans and securities.

Fed officials have wavered on taking such a step, but recently have been struck by the initial success the Bank of England appeared to have with such a move last week.

“The world is suffering through the worst financial crisis since the 1930s, a crisis that has precipitated a sharp downturn in the global economy,” Fed Chairman Ben Bernanke said Tuesday in comments at the Council on Foreign Relations.

A recovery, he added, would be “out of reach” until officials stabilize the financial system, and even if that happens the recession will persist until “later this year.”

Adding a dose of humility to his assessment, Mr. Bernanke conceded, “My forecasting record on this recession is about the same as the win-loss record of the Washington Nationals.” The Major League Baseball team had 59 wins and 102 losses last year, the worst in baseball.

December 7, 2008

Treasury yields almost nil

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 7:48 pm

This news is just nuts. I don’t even have anything to add …

From the link:

The panic in global financial markets has sparked an unprecedented rush into safe US Treasury securities, driving yields on short-term government notes down to almost zero.

Due to stampeding demand for safe short-term investments, the US Treasury’s four-week and three-month bills on Friday yielded an effective rate of 0.01 percent — down sharply from 1.515 percent and 1.785 percent, respectively, in early September.

Other Treasuries are also showing record low yields. The 10-year bond yield fell as low as 2.505 percent and the 30-year bond yield slid to 3.005 percent at one point on Friday. The six-month bond yielded a mere 0.20 percent.

The low yields reflect a surge in demand for these instruments, seen as the safest in the world during times of turmoil.