January 30, 2008

Fed Watch: There Will Be Cuts

UPDATED.

A Wall Street rally following a 50-basis-points rate cut from the Fed today was not long for this world, as yet another negative economic report sent the Dow back down 37.47 points to close at 12,442.83. The S&P 500 and Nasdaq also pulled back from afternoon bumps.

Earlier in the afternoon, the Fed slashed interest rates to 3 percent, as was widely anticipated. The confirmation sent the Dow Jones industrial average and the S&P 500 ticking back up. But bad news from the bond sector sent those indexes sinking back down.

The brief rally may just have been a sigh of relief that the Fed had delivered as projected. New data released today show economic growth is grinding down, heightening fears of a recession this year.

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets," the Federal Open Market Committee said in a statement. "The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."

Chairman Ben Bernanke joined in the near-unanimous decision. Voting against the cut was Richard Fisher, president of the Federal Reserve Bank of Dallas. The Board left the door open to future reductions.

"It's great that they did it now. I wish they had done it earlier," said CNBC's Jim Cramer, who has been screaming -- sometimes literally -- about the Fed's slowness to act on the housing bust and credit crunch.

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Posted at 5:04 PM
Posted to: Bush Administration, Congress, Economy, Federal Reserve, House, President Bush, Senate
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January 24, 2008

House Leaders: Stimulus Not Perfect But Will Do The Trick

UPDATED.

In a rare display of bipartisan camaraderie, House Speaker Nancy Pelosi and Minority Leader John Boehner urged colleagues to get their $145 billion compromise stimulus package to the White House ASAP.

"We will bring it to the floor at the earliest date so those rebate checks can be in the mail," Pelosi said during a joint press conference with her Republican counterpart and Treasury Secretary Henry Paulson, who represented the Bush administration during the late-night negotiations yesterday.

The legislation includes tax rebates from $300 to $1,200, with low-wage earners at one end and middle-income joint filers on the other. Recipients will also receive a $300-per-child bonus on top of what they get in rebates.

Those figures are lower than the expected $800-$1,600 range, but in exchange for lowering the disbursements, congressional Republicans agreed to extend the rebates to workers who don't earn enough to pay income taxes. Individuals who earned at least $3,000 in 2007 will get a check for $300, while mid-level earners would receive at least $600. Individuals earning more than $87,000 and families earning more than $187,000 won't get a check. Individuals who fall in the $75,000-$87,000 range and households in the $150,000-$187,000 would receive reduced checks.

"This is an initiative to strengthen the middle class and those who aspire to be in the middle class," Pelosi said, adding that the rebates were going to those who will "spend it right away to inject demand into the economy to help create jobs and to help turn around the economy."

Calling the deal "a big win for the American people," Boehner seconded Pelosi's assessment of the package. "It will stimulate our economy in the most direct and effective way possible, by putting money in the hands of middle-income families and giving businesses incentives to create and keep new jobs in the economy," he said

Both sides were forced to make concessions in order to reach speedy agreement on the package. Pelosi and her caucus gave up on an expansion of food stamps and unemployment benefits, and also consented to as much as $50 billion in tax breaks for businesses. In return, Republicans agreed to extend the rebates to the 35 million-plus workers who don't earn enough to owe income taxes and would have been ineligible for the rebates under President Bush's original plan.

"The Speaker gave some, we gave some. This was not easy, as most of you know, for the two of us and our respective caucuses... to have to come together and work in a bipartisan way and reach a compromise that I think is in the interest of the American people," Boehner said.

"I can't say that I'm totally pleased with the package, but I can say it will help the economy. And if it does not, there will be more legislation to come," Pelosi vowed.

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Posted at 3:40 PM
Posted to: Bush Administration, Congress, Economy, Federal Reserve, House, President Bush, Senate, Taxes
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January 23, 2008

Econ Watch: Throwing $$$ At The Problem

Yesterday, President Bush and the leaders of his political opposition, Harry Reid and Nancy Pelosi, strongly signaled that they were on board with the outlines of the White House's economic stimulus proposals. That may be by necessity, since all parties are under intense pressure to jolt consumers and businesses into spending again.

Though Republicans and Democrats in Congress are still quibbling over who will get the tax rebates -- everyone, or just those who pay income tax -- the global market chaos of this week is spurring them to make a deal, fast. "There are no issues of disagreement right now," House Minority Leader John Boehner told reporters yesterday. Though Bush's plan doesn't include rebates for low- and moderate-income workers who pay more in payroll tax than income tax, there are signs that Republicans can be persuaded to include those groups.

"It must be broad-based. To be effective, the package must reach a large number of citizens," Treasury Secretary Henry Paulson told the U.S. Chamber of Commerce in a speech yesterday. The Washington Post interpreted Paulson's selection of the word "citizens," rather than "taxpayers," as a sign that the White House is also willing to expand coverage of its tax rebates.

The Democrats' case -- that low-income people who aren't eligible for those $800-$1,600 checks not only need them the most, but are more likely to spend them immediately -- is a compelling one. But before we go there, maybe lawmakers should explain why mailing out checks to millions of Americans is a good idea in the first place.

Continue reading "Econ Watch: Throwing $$$ At The Problem"

Posted at 4:56 PM
Posted to: Ben Bernanke, Bush Administration, Campaigns, Congress, Economy, Federal Reserve, President Bush, Taxes, WH 2008
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January 22, 2008

Econ Watch: The 'Uh-Oh' Heard 'Round The World

UPDATED.

President Bush sought to assure investors and consumers that a relief package was on the way, though he made no promises about when.

"I believe we can find common ground to get something done," he said, flanked by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. They were joined by Bush's economic team at the White House for a briefing on Bush's recent trip to the Middle East as well as a discussion of the $150 billion stimulus package the president proposed on Friday.

"The economy is inherently strong, but it needs to get a boost. We need to make sure this uncertainty doesn't translate into more economic woes for our workers and businesspeople," Bush said.

Bush was discussing the nation's economy with opposition leaders in Congress on a day of dizzying volatility in the U.S. and global markets. This morning, the Federal Reserve Board made its first emergency rate cut since shortly after the 9/11 attacks, voting to slash its benchmark interest rate by 75 basis points to 3.5 percent. The move was meant to provide immediate relief for debtors in an economy seized by a two-fer liquidity and credit drought.

The surprise announcement came one week before the Fed's regularly scheduled meeting, at which it was expected to further nick at rates by 50 basis points. The move did nothing, initially, to mitigate fears that the U.S. economic slowdown is having a tsunami effect on global markets. The Dow plummeted more than 460 points soon after the opening bell.

But the emergency cut was also a signal that the Fed stands at the ready to react aggressively to the economy's downturn. By noon the sell-off had slowed, and the Dow mostly recovered to close down 128 points, or 1.1 percent.

Continue reading "Econ Watch: The 'Uh-Oh' Heard 'Round The World"

Posted at 5:02 PM
Posted to: Asia, Ben Bernanke, Bush Administration, Congress, Economy, Europe, Federal Reserve, President Bush
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January 17, 2008

Dow Plummets; Bernanke Calls For Stimulus ASAP

UPDATED.

Blue chips sank more than 300 points today, the biggest single-day drop of the year so far. The slide suggests that a federal economic stimulus fix currently in the works may be arriving too late for investors' tastes.

Federal Reserve Chairman Ben Bernanke told lawmakers this morning that if they were serious about putting the brakes on the U.S. economic slowdown, any congressional stimulus package would have to be implemented sooner rather than later.

"To be useful, a fiscal stimulus package should be implemented quickly and structured so its effects on aggregate spending will be felt in the next months or so," Bernanke said in his opening remarks before the House Budget Committee. "There could be destabilization if the package comes at a time growth is improving. Measures that rely on long lead times will not provide stimulus when it is most needed."

President Bush had been expected to announce his own stimulus package ahead of his State of the Union address on Jan. 28, but the White House said today that he would be discussing the proposals on deck in a speech tomorrow. Investors are clearly impatient for some sort of cash injection into the economy, and a round of negative economic reports today only underscored the urgency with which Wall Street wants help halting the nation's growth slowdown.

Notably, Bush appears to be heeding the advice dispensed by Bernanke, and moving more quickly on a stimulus package than originally planned. At the noon press briefing, while Bernanke was still testifying, spokesman Tony Fratto said there was no time frame for when the president planned to address the economy and indicated the White House was still hanging on to hope it would be able to use the package to make tax cuts permanent.

Bush met with congressional leaders from both parties following Bernanke's testimony, and press secretary Dana Perino announced that the president's main concerns now were that the package be temporary, effective and pass as quickly as possible. According to House Minority Leader John Boehner, the package could top out at $150 billion.

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Posted at 4:46 PM
Posted to: Ben Bernanke, Bush Administration, Congress, Economy, Federal Reserve, House, President Bush, Taxes
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December 18, 2007

Fed Proposes New Rules For Lenders To Ease Mortgage Crisis

After months of urging from lawmakers, market-watchers and consumer advocates concerned about the impact of risky subprime loans on the slumping housing market, the Federal Reserve unanimously agreed to propose tighter restrictions on lenders this morning.

The proposal includes "a ban on low-documentation loans and limits on penalties for borrowers who prepay their debts," Bloomberg News reports. According to MarketWatch, the proposed rules would not apply to current borrowers but would instead aim to avoid future lending crises "like the one that has crippled the subprime mortgage industry."

"Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy," Federal Reserve Chairman Ben Bernanke said in a statement. "We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated."

CNNMoney.com and the Wall Street Journal (subscription) have more on the proposal, and the Fed's Web site has highlights. In related news today, the Economist named the subprime mortgage crisis the "biggest mess" in the business world this year.

Posted at 1:52 PM
Posted to: Ben Bernanke, Economy, Federal Reserve
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November 08, 2007

Bernanke Predicts Growth Slowdown Heading Into '08

In testimony before Congress' Joint Economic Committee today, Federal Reserve Chairman Ben Bernanke had some good news and some bad news for American investors amid growing concerns on both Wall Street and Main Street.

The bad news: The current turmoil that began in the housing sector and trickled down into securities and other financial markets will likely slow economic growth in the coming year, while higher oil prices and the weak dollar could boost inflation and "impose further restraint on economic activity."

The good news: Overall, the economy "remained resilient in recent months," and "the recent developments may well lead to a healthier financial system in the medium to long term."

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Posted at 11:46 AM
Posted to: Ben Bernanke, Economy, Federal Reserve
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