Posts Tagged ‘Federal Reserve Board’
Fed Begins Tightening Process: Discount Rate Raised To 0.75% From 0.5%, Dollar Surges, Curve Pancakes
Thursday, February 18th, 2010
This article is a guest contribution by Tyler Durden, ZeroHedge.com.
Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater. Fed hikes discount rate by 25 bps - Hoenig, Plosser are finally heard. Futures plunge, dollar surges, 2s10s pancake.
For release at 4:30 p.m. EDT
The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.
Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve’s lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.
In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Primary credit is provided by Reserve Banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010.
Easing the terms of primary credit was one of the Federal Reserve’s first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC’s target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.
Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.
Source: ZeroHedge.com
Tags: Backup Source, Bandwagon, Board Approval, Boards Of Directors, Bps, Credit Loans, Depository Institutions, Economic Conditions, Federal Funds Rate, Federal Open Market Committee, Federal Reserve, Federal Reserve Banks, Federal Reserve Board, Fomc, Maximum Maturity, Normalization, Open Market Committee, Single File, Source Of Funds, Target Range, Tyler Durden
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Keep a Close Eye on Lending Standards
Tuesday, August 4th, 2009
The Federal Reserve Board’s Senior Loan Officer Opinion Survey is due to be published on August 17. This is an important document for assessing to what extent credit markets are thawing and confidence is returning to the financial system.
In the meantime, the European Central Bank’s Euro Area Bank Lending Survey has just been published. The net percentage of banks reporting a tightening of credit standards for loans to firms more than halved to 21% in the second quarter of 2009 from 43% in the first quarter - down from a peak of more than 60% in the third and fourth quarters of 2008.
As one would expect, there is a strong correlation between the lending standards in the US and Europe, as shown in the graph below. Based on the historical relationship it seems likely that the number of US loan officers reporting a tightening of lending standards later this month could decline significantly - from 40% to possibly in the region of 20%.
Source: Federal Reserve Board’s Senior Loan Office Opinion Survey and the European Central Bank’s Euro Area Bank Lending Survey
A decline in the lending standards of US banks should be bullish for the economic recovery and financial markets, but the demand for loans also needs to improve in order for confidence in the world’s financial system to return to more “normal” levels and liquidity to start flowing freely again, fueling a descent economic recovery. The Senior Loan Officer Opinion Survey due out in two weeks’ time should provide quite a few answers.
Tags: Bank Lending Survey, Banks, Confidence, Correlation, Credit Markets, Economic Recovery, Extent, Federal Reserve, Federal Reserve Board, Few Answers, Financial Markets, First Quarter, Graph, liquidity, Loan Office, Loan Officer, Loan Officers, Opinion Survey, Quarters, Second Quarter
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Tim Bond on China and the Fed’s “punch bowl”
Wednesday, June 24th, 2009
Tim Bond, head of asset allocation at Barclays Capital, discusses in the video clips below the outlook for Chinese growth, as well as government bond yields and when the Federal Reserve Board will start raising rates. FT’s investment editor John Authers conducts the two-part interview that also covers a number of other topical issues.
Part 1:
Will Chinese domestic growth be the saviour of the global economy?
Click here or on the image below to view the interview.
Part 2:
Are bond yields normalising? When will the Fed start raising rates?
Click here or on the image below to view the interview.
Source: John Authers, Financial Times, June 22 and June 23, 2009.
Tags: Asset Allocation, Barclays, Barclays Capital, Bond Yields, China, Chinese Growth, Federal Reserve, Federal Reserve Board, Financial Times, Global Economy, Government Bond, Image, Interview Source, John Authers, June 23, Punch Bowl, Saviour, Tim Bond, Topical Issues, Video Clips
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The Former Sheriff of Wall Street
Tuesday, May 12th, 2009
Eliot Spitzer, Former Governor of New York, and Arianna Huffington, Editor and Founder of The Huffington Post have an enlightening conversation on Squawk Box. This must see clip features an outspoken and re-invigorated Spitzer making his first appearance on CNBC since he resigned as Governor 14 months ago.
Here is an excerpt of Spitzer’s article on the power of the New York Fed, and in particular, about who is running it, published in Slate.com, as mentioned.
Fed Dread
The New York Fed is the most powerful financial institution you’ve never heard of. Look who’s running it.
By Eliot Spitzer
Posted Wednesday, May 6, 2009, at 12:29 PM ET
The kerfuffle about current New York Federal Reserve Bank Chairman Stephen Friedman’s purchase of some Goldman stock while the Fed was involved in reviewing major decisions about Goldman’s future—well-covered by the Wall Street Journal here and here—raises a fundamental question about Wall Street’s corruption. Just as the millions in AIG bonuses obscured the much more significant issue of the $70 billion-plus in conduit payments authorized by the N.Y. Fed to AIG’s counterparties, the small issue of Friedman’s stock purchase raises very serious issues about the competence and composition of the Federal Reserve of New York, which is the most powerful financial institution most Americans know nothing about.
A quasi-independent, public-private body, the New York Fed is the first among equals of the 12 regional Fed branches. Unlike the Washington Federal Reserve Board of Governors, or the other regional fed branches, the N.Y. Fed is active in the markets virtually every day, changing the critical interest rates that determine the liquidity of the markets and the profitability of banks. And, like the other regional branches, it has boundless power to examine, at will, the books of virtually any banking institution and require that wide-ranging actions be taken—from raising capital to stopping lending—to ensure the stability and soundness of the bank. Over the past year, the New York Fed has been responsible for committing trillions of dollars of taxpayer money to resuscitate the coffers of the banks it oversees.
Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.
So who selected Geithner back in 2003?
Read the rest of the article here.
Tags: Arianna Huffington, Banking Institution, Board Of Governors, Boundless Power, Chairman Stephen, Clip Features, Critical Interest, Federal Reserve Bank, Federal Reserve Board, Federal Reserve Board Of Governors, First Among Equals, First Appearance, Former Governor Of New York, Huffington Post, Kerfuffle, New York Fed, Private Body, Squawk Box, Stephen Friedman, Wall Street Journal
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Senior Loan Officer Opinion Survey – credit conditions are improving
Tuesday, May 5th, 2009
The Federal Reserve Board’s Senior Loan Officer Opinion Survey has just been published. This is an important document for assessing to what extent credit markets are thawing and confidence is returning to the financial system. The analysis below is a guest contribution by Asha Bangalore*, vice president and economist at The Northern Trust Company.
The number of loan officers reporting a tightening of underwriting standards for commercial and industrial loans in the April survey was significantly smaller for large firms (39.6% vs. peak of 83.6% in the fourth quarter) and small firms (42.3% vs. peak of 74.5% in the fourth quarter) compared with the February survey and the peak readings of the fourth quarter of 2008 (see chart 1).
At the same time, the cost of borrowing for both small and large firms declined in the April survey from the peak in the fourth quarter of 2008.
Although the terms of loans eased in the recent months, the demand for loans remained weak (see chart 3), reflecting the massive liquidation of inventories that is underway. In particular, the demand for loans was essentially unchanged at a weak level for large firms but was weaker with respect to demand from small firms (see chart 3).
The commercial real estate sector is mired with problems. The demand for loans is noticeably weak and loan underwriting standards for commercial real estate have eased only slightly (see chart 4).
In the household sector, the demand for prime mortgage loans posted a jump (see chart 5), while that of non-traditional mortgages was less weak in the latest survey compared with the February survey.
At the same time, mortgage underwriting standards were tighter for both prime and non-traditional mortgages in the April survey compared with the February survey. In other words, more needs to done here to revive home sales.
Loan officers had reduced the stringent conditions for non-credit card consumer loans but were nearly unchanged vis-à-vis credit cards in the latest survey compared with the previous survey.
The demand for consumer loans also improved to the extent it was less negative (see chart 
and at the same time fewer loan officers were less willing to extend loans to consumers (see chart 9).
Source: Asha Bangalore, Northern Trust - Daily Global Commentary, May 4, 2009.
*Asha Bangalore is vice president and economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.
Tags: Commercial Real Estate, Consumer Loans, Cost Of Borrowing, Credit Markets, Federal Reserve Board, Fourth Quarter, Household Sector, Industrial Loans, Inventories, Loan Officer, Loan Officers, Mortgage Loans, Mortgage Underwriting, Northern Trust Company, Opinion Survey, Prime Mortgage, Real Estate Sector, Stringent Conditions, Time Mortgage, Traditional Mortgages
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The Yield Curve is Flattening?
Wednesday, December 17th, 2008
Long-term government bond yields are dropping everywhere. Is anybody going this way?
Here is what some of the folks in the bond market are saying:
Eric Lascelles, Chief Economic and Rates Strategist, TD Securities Inc.: “It is remarkable, the speed at which this is happening,” said Eric Lascelles, chief economics and rates strategist for TD Securities Inc.
Stewart Hall, currency and fixed-income strategist with HSBC Securities (Canada) Inc.: “I think one of the overarching themes today is global recession.” On a positive note, “You have the Fed and other government agencies operating in an imaginative and innovative fashion to throw as much as necessary [at the problem] to get the economy back in track.”
Mark Chandler, fixed-income strategist with RBC Dominion Securities Inc.: “Long-term rates are playing catch-up in terms of the decline in yields we have seen in short-term bonds. There is limited downside in short-term yields.”The relatively greater drop in yields on long-term bonds compared with short-term bonds is a theme that could continue into the first half of 2009, Mr. Chandler said. In the parlance of bond traders, this is known as a yield curve flattener, as the difference in yield between short-term and long-term bonds narrows.
The decision by the Fed last week to buy $500-billion (U.S.) of agency guaranteed mortgage-backed securities, along with $100-billion of other agency (government-sponsored enterprises) debt, is a force acting to push yields down.
On an increasing basis, the Fed has been taking steps to manage through the U.S. housing crisis. The plan injects liquidity into the system, and frees up cash available for mortgage lending, as well as serving to lower U.S. mortgage rates. The rate of 30-year mortgages has fallen to 6 per cent last week from 6.5 per cent.
Less than two weeks ago, Federal Reserve Board chairman Ben Bernanke indicated that the Fed could also decide to buy longer-term U.S. Treasuries, which would reduce bond supplies, resulting in higher prices and a decline in yields.
From Bloomberg:
The 10-year note’s yield fell as much as 14 basis points, or 0.14 percentage point, to 3.37 percent. It traded at 3.40 percent at 3:04 p.m. in Toronto. The price of the 4.25 percent security maturing in June 2018 advanced 84 cents to C$106.86.
The yield on the two-year government bond dropped six basis points to 1.77 percent. The price of the 2.75 percent security due in December 2010 rose 12 cents to C$101.95.
The 10-year bond yielded 163 basis points more than the two- year security, down from 168 basis points yesterday. The so- called yield curve reached 184 basis points on Nov. 6, the steepest since May 2004.
Our thoughts are that Government of Canada bond yields which are still higher than those of comparable US treasuries will also come down over the next year, as investors seek the refuge of government securities (and Canada’s higher yields), on the Canadian as well as global recession trend. The current blows to the Canadian economy come as the Auto industry copes with the difficulties of the Big Three automakers, and in the commodities sector, with the decline in commodities prices that has led producers to consider shutting in mining and exploration projects, and laying off employees. On this basis, it seems far more likely that Canada’s yield curve could continue to flatten along with the US treasury yield curve, leading to higher bond prices and lower yields.
Levente Mady, a fixed-income strategist at MF Global Canada Co.: “Inflation doesn’t matter any more. It’s deflationary concern that’s underpinning the bid in the long end of the market. Yields are literally gravitating towards zero. It’s almost like it doesn’t matter if the news is good, bad or indifferent.”
Sources: Globe and Mail, Bloomberg
Tags: Array, Ben Bernanke, Bond Traders, Bond Yields, Canada, Canada Inc, Federal Reserve Board, Federal Reserve Board Chairman, Global Recession, Government Bond, Government Sponsored Enterprises, Hsbc Securities, Lascelles, Mark Chandler, Mortgage Backed Securities, Other Government Agencies, Rbc Dominion Securities, Rbc Dominion Securities Inc, Td Securities Inc, Term Bonds, Term Yields, Yield Curve
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