Photograph by Nicholas Kamm/AFP via Getty Images

Federal Reserve chairman Ben Bernanke arrives for a family photo of finance ministers and central bank governors following the G20 meeting at the 2013 World Bank/IMF Spring meetings in Washington on April 19, 2013.

The Federal Reserve made it clear in describing the U.S. economy today that any fault for this year’s sluggish expansion lies outside the central bank.

“Fiscal policy is restraining economic growth,” the Federal Open Market Committee said, with a more direct message than in March when tax and spending policy was described as “somewhat more restrictive.”

Fed Chairman Ben S. Bernanke has repeatedly said that, while Congress needs to make fiscal policy sustainable over the long run, too much tightening right away is harmful. “There is a sense in which monetary and fiscal policy are working at cross-purposes,” Bernanke said in congressional testimony in February.

The FOMC’s bluntness is “very unusual,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, and former chief economist for the Senate Banking Committee. That message “reflects disappointment from Bernanke’s point of view, that there’s a lack of a coherent fiscal policy.”

“The characterization of fiscal policy has gone up one alert level,” agreed Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., in a report today.

Automatic federal spending cuts known as sequestration took effect on March 1. If no action is taken by Congress, spending will be reduced by $85 billion this year and $1.2 trillion over nine years. Consumers are also contending with a 2 percentage point increase in the payroll tax that took effect in January.

Federal Open Market Committee statement: go.usa.gov/Tmb5 #FOMC

— Federal Reserve (@federalreserve) May 1, 2013

Original post is Fed on U.S. Growth: Don’t Blame Us by Political Capital.

Photograph by Paul J. Richards/Pool

Secretary of State John Kerry, center, is welcomed and escorted by U.S. Ambassador to South Korea Sung Y. Kim, left, and deputy director general of South Korea’s Foreign Ministry, Moon Seoung-hyun, in front of a traditional honor guard at Seoul air base on April 12, 2013.

Original post is Washington Daybook: Definitely Maybe by Political Capital.

Photograph by Victor J. Blue/ Bloomberg

Pedestrians carry shopping bags on Fifth Avenue in New York.

The grades are still low, but they’re better than last year.

While Washington policy makers are being blamed for sequestration and the budget impasse, Americans this year are registering improving confidence in their leaders’ ability to “do or to recommend the right thing for the economy,” according to an annual Gallup poll released today.

All four parties — President Barack Obama, Federal Reserve Chairman Ben Bernanke, and Democratic and Republican leaders in Congress — earned higher marks from respondents than last year, with Obama taking the top spot. Gallup conducted telephone interviews with 1,005 adults from April 4-7.

Fifty-seven percent of those polled trusted the president a “great deal” or “fair amount” on the economy, breaking above the 50-percent line for the first time in three years.

Fewer than half of Americans surveyed felt the same about the other officials. Democratic leaders stood at 48 percent, Bernanke at 42 percent and Republicans at 39 percent.

Bernanke’s tally marked his first improvement since 2009, shortly after the Fed embarked on what has become unprecedented quantitative easing that has ballooned the central bank’s balance sheet to $3.2 trillion in efforts to spur the recovery.

The chairman’s term ends Jan. 31, and speculation is that he’ll be succeeded by Vice Chairman Janet Yellen. She’s favored among 65 percent of fund managers polled, according to the results of a survey by International Strategy & Investment Group issued last week. Sixteen percent bet Bernanke would be reappointed.

“Bernanke is generally seen as a powerful force for economic stability in the global financial markets, but this may not be enough for him to be reappointed, particularly if the U.S. economy goes into another economic swoon this spring,” according to the Gallup release.

Thirty-four of 43 economists polled by Bloomberg are projecting a slowing of U.S. growth in the second quarter from the first three months of the year, according to survey results released today.

“A lot of this has to do with where your assumptions are on sequestration,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “If you assume that the impact is immediate, as most of us do, then the second quarter will be weak,” with budget cuts contributing to a “choppiness” in the data over the next few months.

Original post is Americans Critical of Economic Stewardship — Though Less So by Political Capital.

Photograph by Andrey Rudakov/Bloomberg

An employee counts U.S. 100 dollar notes and 500 ruble notes, right, at the counter of an OAO Sberbank currency exchange in Moscow, Russia.

Ask Federal Reserve officials about their goals for the U.S. exchange rate, and they will demur. The Fed’s standard response is that the strength or weakness of the dollar is a matter for the U.S. Treasury.

Yet one of the biggest drivers of exchange rates is a nation’s monetary policy. Raise interest rates and global investors will flock to your currency. Cut rates and they flee elsewhere.

Now two researchers from the San Francisco Fed confirm that the Fed’s unconventional large-scale asset purchase programs, known as QE for quantitative easing, push down the value of the dollar when they’re announced.

“Changes in the dollar’s value immediately following surprise policy announcements are comparable before and after the crisis,” wrote Reuven Glick and Sylvain Leduc, in a commentary published today on the San Francisco Fed’s website.  “This suggests that changes in unconventional monetary policy have affected the dollar about as much as changes in the federal funds rate did before the financial crisis.”

The research may bolster the confidence with which central bankers can deploy quantitative easing as they seek to revive an economy with 7.7 percent unemployment. Prior to 2008, the Fed had relied on lowering and raising its target interest rate to guide the economy. Glick and Leduc’s research suggests that QE may be similarly effective.

“One way to measure the effectiveness of unconventional monetary policy tools is through the U.S. dollar exchange rate,” wrote Glick and Leduc, who are both economists at the San Francisco Fed.

“Although the Fed does not target the exchange rate specifically, monetary policy decisions ultimately affect the dollar’s value, which can have important effects on the economy,” they wrote. Their research focuses on the effect of surprise policy announcements and finds that “the greater the surprise, the more the dollar depreciates.”

So how much depreciation? Their research shows that a 1 percentage point easing in long-term Treasury futures rates causes a 3 percentage point decline in the value of the dollar. All else equal, this ought to boost the country’s exports and strengthen the economy.

That’s why Fed Chairman Ben Bernanke says the Fed’s policies — and those of other central banks that have lowered their interest rates and engorged their balance sheets — are justified.

“The advanced industrial economies are currently pursuing appropriately expansionary policies to help support recovery and price stability in their own countries,” Bernanke said in a speech last week in London. “As the modern literature on the Great Depression demonstrates, these policies confer net benefits on the world economy as a whole and should not be confused with zero- or negative-sum policies of trade diversion. In fact, the simultaneous use by several countries of accommodative policy can be mutually reinforcing to the benefit of all.”

For Related News and Information:

Original post is Fed Doesn’t Target Exchange Rates — But if it Did… by Political Capital.

Photograph by Robert Nickelsberg/Getty Images

A man searches for recyclable bottles and cans near the New York Stock Exchange on June 8, 2012 on Wall Street in New York City.

Income inequality is becoming an increasing issue for Federal Reserve officials and may prove to be an important factor in monetary policy, according to Credit Suisse Group AG.

Citing speeches by policy makers including Vice Chairman Janet Yellen and Governors Sarah Bloom Raskin and Elizabeth Duke, New York-based economists Neal Soss and Dana Saporta said in a March 24 report that officials are concerned income disparity undermines the ability of the economy to grow sustainably and efficiently.

Raskin has noted the U.S. poverty rate now stands at 15 percent, higher than the three-decade average of 13.4 percent, while Duke says new households face tight credit conditions.

Yellen says hourly compensation has barely kept pace with the cost of living over the last three years.

By contrast, Soss and Saporta said the collective finances of American households appear to have improved since the 2009 recession. Debt-service burdens are the lowest in 30 years and record low borrowing costs have helped households extend financially.

The challenge is that the Fed has limited means to address inequality, they said. Chairman Ben S. Bernanke has said the best way the Fed can help is to spur hiring.

That suggests to the Credit Suisse economists that inequality probably will to play a role in the data used to justify continuing easy monetary policy.

Original post is Income Inequality on Fed’s Radar by Political Capital.

The House will devote the whole day to debating fiscal 2014 budget blueprints. Look for votes on alternatives to the proposal drafted by Budget Chairman Paul Ryan, a Wisconsin Republican. The Senate edges forward on the spending bill for the rest of fiscal 2013, with votes planned on a substitute amendment. If the Senate can reach agreement for a final vote on the spending bill today, work can begin on its fiscal 2014 budget plan.

And members of the Federal Open Market Committee are expected to keep interest rates near zero as they conclude two days of talks over policy today. Fed Chairman Ben S. Bernanke is tightening control of the central bank’s communications to ensure investors hear his pro-stimulus message over the more hawkish views from regional bank presidents, Blooomberg News reported.

Former Gov. Charlie Crist, running as a  Democrat, tops Florida Gov. Rick Scott by 50-34 percent among registered voters in a survey about the 2014 election,, according to a Quinnipiac University poll. Voters say by 50-40 percent that Crist’s switch from Republican to independent to Democrat shows he is a pragmatist rather than lacking in core beliefs.

The Interior Department opens bids to lease 38.6 million acres off coasts of Louisiana, Mississippi and Alabama for exploration that may tap 1 billion barrels of oil and 4 trillion cubic feet of natural gas. Sens. Lisa Murkowski, an Alaska Republican, and Mary Landrieu, a Louisiana Democrat, will hold news conference at the same time on legislation aimed at ensuring producing states receive a fair share of energy revenues.

The House Agriculture Committee marks up seven bills today, mostly dealing with swaps and intended to ease Dodd-Frank derivative rules.Republcian  Gov. Bob McDonnell of Virginia appears on Bloomberg TV to discuss legislation that allows states to collect taxes on sales by out-of-state companies incl Amazon. Republican Sens. John Barrasso of Wyoming, Orrin Hatch of Pennsylvania and Mike Johanns of Nebraska hold a media availability on legislation “to repeal the most burdensome and costly aspects of the president’s health care law.”

The FCC holds an open meeting to consider measure to improve reliability of 9-1-1 service.

And on the first day of Spring, Sucampo Pharmaceuticals Inc. hosts The Pink Tie Party, a fundraiser held with more than 30 participating restaurants to kick off the 2013 National Cherry Blossom Festival.

There are, however, no blossoms around the Tidal Basin yet.

Original post is Washington Daybook: Awaiting Cherries by Political Capital.

Photograph by Derick E. Hingle/Bloomberg

The USS Arlington, front, and USS San Diego, rear, both U.S. Navy amphibious transport dock ships, sit at the dock at Ingalls Shipbuilding yard, a division of Huntington Ingalls Industries Inc.

President Barack Obama will tell workers at a Huntington Ingalls shipbuilding facility in Newport News, Virginia, today that their jobs may depend on his ability to work out a compromise with Republicans in Congress over sequestration. Huntington CEO Michael Petters speaks on Bloomberg TV ahead of Obama’s speech.

Look for the introduction of competing Senate Democratic and Republican bills
that would replace the $85 billion in automatic spending cuts that start Friday.
Democrats want to replace the cuts with a combination of tax increases on
the wealthy and cuts in farm subsidies and defense spending. Republicans haven’t settled on their plan. A House Appropriations panel hears from Army Chief of Staff Raymond Odierno and leaders of Navy, Marine Corps and National Guard on the impact of the cuts.

Fed Chairman Ben S. Bernanke gives his semi-annual testimony on central bank monetary policy before the Senate Banking Committee. His efforts to rescue the economy could result in more than a half trillion dollars of paper losses on the Fed’s books if interest rates rise abruptly, Bloomberg News reported. Speaking of the economy  the Senate Finance Committee hears from Congressional Budget Office Director Doug Elmendorf on the economic outlook for the next decade.

Federal Deposit Insurance Corporation Chairman Martin Gruenberg reports on bank and thrift earnings for the fourth quarter and updates his list of problem lenders at heightened risk of failure.

Consumer Financial Protection Bureau’s Richard Cordray and Comptroller of the Currency Thomas Curry speak on enforcing consumer protection laws at a National Association of Attorneys General conference.

The Commodity Futures Trading Commission and the International Organization of Securities Commissioners hold a public meeting on ways to overhaul scandal-plagued benchmarks such as the London Interbank Offered Rate, or Libor. CFTC Chairman Gary Gensler has questioned the viability of Libor after three banks paid more than $2.5 billion in fines to settle rate rigging charges.

On Capitol Hill, House Speaker John Boehner delivers remarks at Credit Union National Association Conference. House Financial Services Chairman Jeb Hensarling and Rep. Debbie Wasserman Schultz also speak.

Senate Democrats scheduled a cloture vote on Chuck Hagel as defense secretary today after some Republicans said they’ll drop opposition, while the Senate Finance Committee meets to consider Jack Lew’s nomination to be Treasury secretary.

And the Supreme Court hears arguments on whether states are violating the Constitution by collecting DNA samples from people when they are arrested in effort to link them to unsolved crimes.

Original post is Washington Daybook: Sequestration Countdown by Political Capital.

Photograph by Alex Wong/Getty Images

Secretary of Treasury Timothy Geithner arrives at the Capitol for meeting with congressional leaders on Nov. 29, 2012.

This is Treasury Secretary Tim Geithner’s last day at work, and he is leaving with an exit interview snared by Politico in which the veteran warrior of the fiscal cliff wars suggests Republicans have ceded the debt ceiling as a political weapon. And this, he says, is a good thing.

Geithner also rules out any idea of him succeeding Federal Reserve Chairman Ben Bernanke, serving his final year.

The move by House Republicans that cleared the House this week with a waiver until May of the federal debt ceiling points to fiscal negotiations less fraught with economic danger, the departing secretary tells Politico’s Ben White and Mike Allen.

Original post is Geithner: Republicans Cede Debt Lever by Political Capital.

Photograph by Andrew Harrer/Bloomberg

House Speaker John Boehner, a Republican from Ohio, right, walks out of a House Republican caucus meeting at the Capitol on Jan. 1, 2013.

Updated at 10:50 and 11:10 am EST

In the end, it’s on John Boehner.

The speaker of the Republican-run House couldn’t convince his own party to accept his own alternative to the year-end tax increases which now have technically taken effect, if for only a day or few. Now he faces the task of convincing his House to match the Senate on its early-morning, bipartisan New Year’s vote for new taxes.

In the end, the contours of a deal were drawn without him: Vice President Joe Biden, president of the Senate and a longtime veteran of that body, hashed out an agreement with Senate Minority Leader Mitch McConnell, an old colleague who, remember, had vowed to do everything in his power to prevent President Barack Obama from winning re-election.

Obama won, repeatedly reminding everyone since that he campaigned with a vow to tax the top-earning Americans harder and spare everyone else from the higher income tax rates which, technically, took effect after midnight. The Senate’s bill raises income tax and investment income rates on households earning more than $450,000 a year.

The agreement reached by Biden and McConnell somewhat amazingly drew next to no opposition in the Senate, save for a few who reserved for themselves the right to say they never bought this thing: Three Democrats voted against the measure: Michael Bennet of Colorado, Tom Harkin of Iowa and Tom Carper of Delaware. They were joined by five Republicans who voted no: Chuck Grassley of Iowa, Mike Lee of Utah, Rand Paul of Kentucky, Marco Rubio of Florida and Richard Shelby of Alabama. Senators such as Rubio and Paul are likely to save that claim for the next big political race each faces.

And that leaves Boehner precious little room for political cover.

In the end, the speaker has pledged to hear the Senate’s bill in the House — without promising to pass it unamended. Should the House amend the deal substantially, it runs the risk of no agreement at all. The lame-duck Congress has two-and-a-half days left. Thursday afternoon, it will be succeeded by one with more Democrats in it.

Rep. Debbie Wasserman Schultz, a South Florida Democrat and chairwoman of the Democratic National Committee, said today the Senate’s bill will earn an “overwhelming majority of Democratic votes.” She said in an appearance on MSNBC: “We have a balanced plan here in front of us.”

That leaves Boehner’s Republicans even less cover — and more responsibility for failure.

Rep. Tom Cole of Oklahoma is among the Republicans who have been calling for a compromise on taxes for some time. Now is the time, he said today.

“It’s a measured victory, it’s not a complete victory, it’s  a compromise, each side got something,” Cole said this morning on MSNBC as House Republicans prepared to caucus after noon. “I can walk away from this one thinking we’ve got a very good deal. We ought to take this deal right now.”

Boehner is standing at the bottom of what so many have readily called a “fiscal cliff” — the metaphor coined by Federal Reserve Chairman Ben Bernanke. The Fed chairman and Congressional Budget Office alike have warned of the economic consequences of taking this standoff too far.

The stock market liked what it heard of an impending agreement yesterday. The markets are closed today. They will reopen tomorrow to one kind of news, or another.

“Putting to bed this thing before the markets is really a pretty important thing to do,” Cole added today.

The White House and Senate have thrown the speaker a long rope.

In the end, it’s on him and his House to take it.

Roger Runningen contributed the comments from Congress on MSNBC. 

Original post is Boehner’s View from Bottom of Cliff by Political Capital.

Photograph by Andrew Harrer/Bloomberg

Ben S. Bernanke, chairman of the U.S. Federal Reserve.

Record-low mortgage rates aren’t cheap enough for Federal Reserve Chairman Ben S. Bernanke.

Bloomberg reports that the Fed is buying $45 billion of Treasuries and $40 billion of mortgage-backed securities each month and central bankers are disappointed that their third round of quantitative easing hasn’t led to more savings for consumers on home loans.

Bernanke this month called the trend “unfortunate,” and the Federal Reserve Bank of New York held a workshop to examine the issue.

The reason the Fed’s stimulus hasn’t led to even cheaper borrowing costs for consumers is the spread between mortgage-bond yields and home-loan rates is wider than usual. That’s partly because banks are reluctant to take on the expensive fixed costs of new staff to process the paperwork and tougher capital requirements are making it less attractive to service loans.

The yield gap is blunting the economic benefits of the Fed’s record accommodation, New York Fed President William C. Dudley said in a speech in New York this month.

“The Fed is pushing really hard to try to get the mortgage rate down,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “There just doesn’t seem to be much of an inclination on the part of banks to get out there and beat the bushes.”

Central bankers have been examining how to reduce the spread to increase the impact of their existing stimulus as they run out of options for further easing.

The Fed has kept its benchmark interest rate near zero since 2008 and this month eased policy by saying the rate would stay low “at least as long” as unemployment remains above 6.5 percent and inflation projections are for no more than 2.5 percent.

At the same Dec. 11-12 meeting, the Fed expanded its quantitative easing program by adding the Treasury purchases to the mortgage-bond buying it began in September.

Bernanke’s latest steps have helped make it cheaper to buy a home. The average fixed rate on new 30-year loans was 3.37 percent in the week ended Dec. 20, down from 3.55 percent on Sept. 13, the day the Fed announced its third round of bond buying, according to Freddie Mac data.

That has left the spread, or difference, between so-called primary and secondary rates at about 1.1 percentage points, compared with less 0.7 percentage point in March and an average of about 0.5 percentage point in years before the credit crisis, according to data compiled by Bloomberg.

“It is imperative that the key channels of the monetary policy transmission mechanism are operating as effectively as possible,” Dudley said in Dec. 3 remarks in New York. “To the extent that the primary-secondary rate spread widens, the reduction in pass-through limits the full impact of the policy actions.”

The spread arises because lenders package home loans into bonds and sell them to investors, giving them fresh cash to make more loans. Lenders set aside a portion of the interest income to pay insurance premiums, and they keep another portion to service the debt.

“Under any other historic circumstances, a wide spread had been enough to cause lenders to modify their rate sheets lower to increase volume,” Merrill Ross, an analyst with Baltimore- based Wunderlich Securities Inc., said in a report last week.

Original post is Bernanke Unhappy Mortgage Rates Aren’t Even Lower by Political Capital.