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Westlake Legal Group > Interest Rates

Fed Officials Voice Concern About Slowdown’s Effect on Hiring

Westlake Legal Group 09dc-fed-facebookJumbo Fed Officials Voice Concern About Slowdown’s Effect on Hiring United States Economy Trump, Donald J Recession and Depression Powell, Jerome H International Trade and World Market Interest Rates Federal Reserve System Federal Open Market Committee

WASHINGTON — Several Federal Reserve policymakers, at their most recent meeting, voiced concern that weaker business activity and investment could lead to slower hiring and consumer spending, according to minutes of the meeting published on Wednesday.

The Fed cut interest rates for a second time this year at that meeting, in mid-September, after a reduction in July that was its first since the Great Recession. The moves are meant to insulate the economy from major fallout as trade tensions stoke uncertainty and a global slowdown bleeds into American factories.

Policymakers at the September meeting expected the economy to continue growing steadily with the help of their rate cuts, the minutes showed. But they were increasingly worried about risks to that outlook from President Trump’s trade war, the threat of a chaotic British exit from the European Union, and protests in Hong Kong.

“Participants generally had become more concerned about risks associated with trade tensions and adverse developments in the geopolitical and global economic spheres,” according to the minutes. “Several participants mentioned that uncertainties in the business outlook and sustained weak investment could eventually lead to slower hiring, which, in turn, could damp the growth of income and consumption.”

The Federal Reserve has two main tasks: promoting maximum employment and maintaining stable inflation, which it defines as 2 percent annual price gains. To achieve those goals, policymakers adjust interest rates to try to keep the economy growing at a steady and sustainable pace.

The policy-setting Federal Open Market Committee has become increasingly divided over how to achieve those objectives. That is because the economy’s prospects have been clouded by the trade war and other uncertainties even as consumer spending and job growth have held up.

Some policymakers favor lowering borrowing costs now to insulate the economy against potential shocks, arguing that changes in monetary policy affect the economy with a big lag. But others want to wait for a more pronounced weakening in the economic data, or worry that lowering rates could fuel financial bubbles.

Three people voted against the decision to cut rates in September, the most dissents since Jerome H. Powell became chair last year. Esther George, president of the Federal Reserve Bank of Kansas City, and Eric Rosengren, president of the Boston Fed, did not want to lower rates, while James Bullard, president of the St. Louis Fed, backed a bigger rate cut.

Little has changed since the central bank’s September meeting, and while key officials including Mr. Powell and Richard Clarida, the Fed’s vice chair, have avoided signaling whether or when they will seek to lower borrowing costs again, many investors expect another rate cut when policymakers meet at the end of this month.

Speaking in Denver on Tuesday, Mr. Powell said that “policy is never on a preset course and will change as appropriate in response to incoming information.” He noted that while the job market was strong and inflation was rising toward the Fed’s 2 percent target, “there are risks to this favorable outlook, principally from global developments.”

Despite their positive assessment of the current economy, Fed policymakers were attuned to risks other than the trade war when they met last month, the minutes showed.

Several noted that some statistical models suggested that the likelihood of a coming recession “had increased notably in recent months.” But a couple of officials stressed that such models were difficult to interpret.

Some were concerned that a prolonged inversion of the yield curve — a common recession signal in which interest rates on longer-dated bonds fall below those on short-term debt — could “be a matter of concern.” And “several” were concerned about financial stability, citing a buildup of corporate debt, stock buybacks financed with low-cost debt, and rapid lending in the commercial real estate market.

Despite the mounting risks, “a few” Fed officials felt that markets were expecting too many Fed interest rate cuts going forward, “and that it might become necessary for the committee to seek a better alignment.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Chair Powell Signals Balance Sheet Will Grow Soon After Recent Market Turmoil

Westlake Legal Group merlin_161022012_f11aa40a-2366-4e99-a5c4-6a25c422ccde-facebookJumbo Fed Chair Powell Signals Balance Sheet Will Grow Soon After Recent Market Turmoil United States Economy Quantitative Easing Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System

DENVER — The Federal Reserve chair, Jerome H. Powell, said on Tuesday that the central bank would once again begin expanding its portfolio of government-backed securities and continued to leave the door open to another interest rate cut this month.

While “policy is not on a preset course,” Mr. Powell said, the Fed will “act as appropriate to support continued growth.”

Mr. Powell, in a speech prepared for delivery at an economics conference in Denver, emphasized that the Fed’s next meeting was several weeks away. He said officials were monitoring weaker global growth and uncertainties arising from trade tensions and Britain’s negotiations to leave the European Union.

While he demurred on whether the Fed will cut interest rates for a third time since July, he offered the clearest signal yet that the Fed will soon begin to buy government-backed bonds to expand its balance sheet.

But Mr. Powell emphasized that the coming move is not equivalent to the large bond-buying campaign that the Fed undertook during the Great Recession. That effort, known as quantitative easing, was meant to lift the economy at a difficult moment. The Fed’s effort now would be aimed largely at avoiding the type of volatility that took place in mid-September when a shortage of dollars in an obscure part of the financial market pushed interest rates above the Fed’s intended range.

The central bank has been saying for months that it will eventually need to expand its bond holdings again to keep an ample supply of banking reserves — currency deposits at the Fed — in the financial system.

“That time is now upon us,” Mr. Powell said. He added that the Fed “will soon announce measures to add to the supply of reserves over time.”

Mr. Powell’s speech underscores the challenging juncture facing the central bank, from both a policy-setting and a communications standpoint. Officials want to make sure that monetary policy is appropriately set to insulate the economy from any potential shocks. But they are trying to gauge whether that requires future policy adjustments at a time when domestic economic data is generally holding up and the consumer appears resilient.

Policymakers must also explain why they are resuming balance sheet expansion after stopping their efforts to shrink their holdings in August, a move that came earlier than originally planned. Officials are trying to make clear that the change is purely technical — meant to keep money markets functioning smoothly and the Fed’s policy interest rate at the right level — and not an attempt to stoke the economy.

President Trump’s regular criticism of the central bank risks further clouding the message. The president has spent months calling for interest rate cuts and an end to balance sheet shrinking. While the Fed operates independently of the White House and officials say their moves are based on economic developments and not politics, there is a risk that some onlookers will believe the central bank has capitulated to Mr. Trump.

The Fed has cut interest rates twice since July as trade uncertainty weighs on business investment and a global manufacturing slowdown hits American factories. While officials often repeat that the United States economy is solid, changes to interest rates take awhile to filter though the economy. Policymakers set them with an eye toward how future growth appears to be shaping up — not just how the data looks today.

Risks to that outlook have been running high. Germany’s economy seems to be on the brink of a recession, and China’s economy is slowing. While Chinese trade negotiators are in Washington this week, it remains unclear whether a comprehensive resolution to the trade war can be reached. Britain’s negotiations to exit the European Union are reportedly on shaky ground.

Signs are also mounting that the United States economy may be slowing. Job gains have cooled off, and wage growth seems to have plateaued. Indexes gauging both manufacturing and services have weakened. Despite that, Mr. Powell painted an optimistic picture of the current state of the economy on Tuesday.

“At present, the jobs and inflation pictures are favorable,” he said. “Many indicators show a historically strong labor market, with solid job gains, the unemployment rate at half-century lows and rising prime-age labor force participation.”

Still, he added, “there are risks to this favorable outlook, principally from global developments.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The New York Fed Chief Is Facing His Biggest Test. Here’s His Response.

Westlake Legal Group 29dc-nyfed-facebookJumbo The New York Fed Chief Is Facing His Biggest Test. Here’s His Response. United States Economy Money Market Accounts Interest Rates Government Bonds Economic Conditions and Trends Credit and Debt Banking and Financial Institutions

John C. Williams, president of the Federal Reserve Bank of New York, has spent the past two weeks grappling with the regional bank’s most tumultuous period in years.

Since Sept. 16, a shortage of dollars in an obscure but crucial corner of short-term Wall Street funding, called the repo market, has forced the New York Fed to engage in an ongoing series of market interventions — a first since the Great Recession. The effort is an attempt to keep the central bank’s benchmark rate from accidentally creeping higher.

The situation is the biggest test so far for Mr. Williams — who took the helm of the New York Fed in June 2018 — and one that many market analysts say deserves a less-than-stellar grade.

While officials have succeeded in getting interest rates under control, some investors have criticized the Fed for moving too hesitantly when problems first arose, waiting until rates on repurchase, or repo, agreements had skyrocketed and briefly spilled over, pushing the Fed’s benchmark rate above its intended range.

Mr. Williams, a theoretician responsible for some of the most influential economic studies of the past two decades, was at the center of the disapproval. Before assuming his role as head of the New York Fed, he ran the Federal Reserve Bank of San Francisco and made a practice of ignoring day-to-day market moves. But those moves are central to the New York branch’s mission as the Fed’s primary conduit to — and supervisor of — Wall Street.

His early tenure in New York had not been smooth sailing, even before the market hiccups this month. Mr. Williams ousted two top officials, Simon Potter and Richard Dzina, earlier this year because of differences in management style. Each had more than two decades of experience at the Fed, and Mr. Potter had overseen the markets group. Their dismissal unsettled some bank employees and raised eyebrows on Wall Street.

The shake-up also left another New York Fed official, Lorie Logan, temporarily in charge of the market portfolio — the Fed’s giant stash of bonds. Ms. Logan is well-respected and often pointed to as a natural fit for the permanent job, but former Fed officials worry that she is now essentially auditioning, which could hinder her ability to make tough or unpopular decisions.

In an interview on Friday, Mr. Williams batted back the critiques, defending the timing of the New York Fed’s recent responses and saying that the bank’s team was working effectively.

Mr. Williams also said he still supported the way the Fed has chosen to guide interest rates — what it calls an “ample reserves” framework. Instead of intervening in markets to push rates into place by balancing out supply and demand, as it did before the financial crisis, the Fed now announces how much interest it will pay on banks’ reserves, and that rate is passed through the financial system.

The approach requires the Fed to hang on to large holdings of government-backed bonds to keep reserves, essentially currency deposits at the Fed, plentiful. Central bankers had thought that they had a long way to go before reserves became scarce. So until last month, they were shrinking their balance sheet and drawing down that supply.

But Mr. Williams said the recent episode showed him that the approach might require higher reserves than he had realized. That is important, because it could hint that the Fed will start growing its balance sheet again soon, something several of Mr. Williams colleagues have signaled over the past week.

Mr. Williams, who has a constant vote on monetary policy decisions made by the Federal Open Market Committee, was mum on the other major question facing policymakers — whether the Fed will cut rates beyond the two moves it has already made. He declined to give any hint about his preferences, arguing that amid uncertainty, the Fed should keep its options open.

Here is a look at how he is addressing the biggest questions facing the New York Fed and the central bank, in a curated, and partly paraphrased, transcript.

New York Times: Some market participants have said the Fed was too slow to intervene amid the recent disruption in overnight repurchase agreements, or repos. Can you walk us through the decision-making process?

Mr. Williams emphasized that data on the Fed’s policy rate, the federal fund rate, comes in slowly and the official figure is released on a delay — it comes out at 9 a.m. the following morning. That figured into the timing, Mr. Williams said, because “we need to explain why we’re intervening — the desk directive is very clear,” he said, referring to the rules set out by the policymaking Fed committee for the New York Fed to follow.

The bank is meant “to conduct open market operations, to keep the federal funds rate in the range.”

He noted that the Fed took market participant feedback from the first intervention into account. Since Sept. 17, it has announced a day in advance that it would provide liquidity to markets and how much. It also -announced on Sept. 20 that it would continue intervening through Oct. 10.

There’s concern on Wall Street that you ousted Mr. Potter and Mr. Dzina, and, in doing so, set a tone at the New York Fed in which experts may not feel comfortable speaking up, especially about repo market issues. What is your response to that?

“It’s just completely wrong, in terms of what actually happened,” he said, noting that when rates started to spike in the market for repos earlier this month, he and Ms. Logan were both in Washington for the Federal Open Market Committee meeting.

“It was all hands on deck. Everyone was working tirelessly to understand what was happening,” he said. “The team operated magnificently, there was no delay, there was no hesitation — there was no, in any way, feeling that people weren’t sharing and discussing things very quickly. This is something that Lorie, Lorie Logan, and her colleagues have been preparing for, for years.”

“We have complete confidence in the teams’ analysis, and conclusions, and it played out exactly the way you would want it to,” he said.

When it comes to the recent repo market turmoil, what does a long-term solution to fixing that look like?

“We have learned something. Despite there being a lot of reserves in the system, they weren’t moving around. They’re lumpy.”

When it comes to the level of bank reserves needed going forward, “any view I had before, based on all the research, and the outreach, and the surveys, my view would be that — that level is probably higher,” Mr. Williams said.

“I think we are seeing that liquidity doesn’t move around as easily, in these situations, which means that if we want interest rates to stay kind of on their own in a narrow range, that we have to make sure we have that amount of reserves to support that.”

“As we think about permanent solutions, the big issues, I think, are: what is the right level of reserves,” he said, along with the possibility of some sort of standing facility to keep markets running smoothly.

Do you have a specific number for how much bigger reserves need to be?

He said he did not, but “I do have on my computer a picture of where reserves were in the summer, and where they were in September,” he said. Earlier this year, “we saw a period where these issues were not manifesting themselves in the way that we saw in the last couple of weeks.”

Is market functioning the primary thing keeping you up at night, or are other aspects of central banking in 2019 more worrying?

“This is very acute. This is very much an issue that arose very quickly,” he said of repo market disruption. But when it comes to monetary policy, “we still have a very interesting point where the economy remains in a very favorable place,” but “there’s a lot of uncertainty — the slowing in global growth continues. Uncertainty around trade and other issues, Brexit.”

You’ve been a big advocate of moving early to forestall risks, rather than waiting. Do you think that means lowering rates again before the end of the year?

“I don’t think that this issue — of the lower bound, and trying to risk manage around it — is pertinent to a specific issue, of what decision we should make at the coming meetings.”

“It’s really more about where the likely trajectories of the U.S. economy are right now,” he said. “The issue we’re grappling with, I’m grappling with, is managing these various uncertainties and some of these downside risks, that do seem more prominent now than normally.”

“I do think we’re in a very good place, on monetary policy, and obviously I supported the decisions we’ve made,” he said. “My view is just to continue doing that assessment.”

Did you forecast another cut when the entire Fed committee released its September economic projections?

“I am not going to answer what my projection, or my expectation is, because I think it’s really pretty uncertain,” he said.

He noted that policymakers’ projections fit a few different narratives. “Maybe the economy will do well, surprise to the upside,” or “the economy takes longer, or doesn’t do as well,” and “I don’t know which of those is going to happen.”

We tend to paint Fed officials a faceless technocrats. But you have obsessions outside of economics, including video games. What video games are you playing?

“I really enjoy playing the online games, so I have been playing this game Dark Souls for the last few months,” he said. “You learn about how teams work together, or don’t work together effectively.”

How do you try to bring your personality — the sneaker-wearing, book-loving, craft beer enthusiast — to your leadership role?

He said he encouraged people to be themselves at work, and, prodded, admitted that “we did change the dress code,” adding, “But people always want to know what the new dress code is. And I always say: It’s use good judgment.”

He seemed disappointed that the change in the dress code at the New York Fed, traditionally a jackets-and-heels institution, was not happening faster.

“People are changing. I’m not telling them what they should do, but people are coming in, dressed as they wish,” he said. Among men, “where you really see it — far fewer ties.”

“Like so many things, it’s a longer journey.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The New York Fed Chief Is Facing His Biggest Test. Here’s His Response.

Westlake Legal Group 29dc-nyfed-facebookJumbo The New York Fed Chief Is Facing His Biggest Test. Here’s His Response. United States Economy Money Market Accounts Interest Rates Government Bonds Economic Conditions and Trends Credit and Debt Banking and Financial Institutions

John C. Williams, president of the Federal Reserve Bank of New York, has spent the past two weeks grappling with the regional bank’s most tumultuous period in years.

Since Sept. 16, a shortage of dollars in an obscure but crucial corner of short-term Wall Street funding, called the repo market, has forced the New York Fed to engage in an ongoing series of market interventions — a first since the Great Recession. The effort is an attempt to keep the central bank’s benchmark rate from accidentally creeping higher.

The situation is the biggest test so far for Mr. Williams — who took the helm of the New York Fed in June 2018 — and one that many market analysts say deserves a less-than-stellar grade.

While officials have succeeded in getting interest rates under control, some investors have criticized the Fed for moving too hesitantly when problems first arose, waiting until rates on repurchase, or repo, agreements had skyrocketed and briefly spilled over, pushing the Fed’s benchmark rate above its intended range.

Mr. Williams, a theoretician responsible for some of the most influential economic studies of the past two decades, was at the center of the disapproval. Before assuming his role as head of the New York Fed, he ran the Federal Reserve Bank of San Francisco and made a practice of ignoring day-to-day market moves. But those moves are central to the New York branch’s mission as the Fed’s primary conduit to — and supervisor of — Wall Street.

His early tenure in New York had not been smooth sailing, even before the market hiccups this month. Mr. Williams ousted two top officials, Simon Potter and Richard Dzina, earlier this year because of differences in management style. Each had more than two decades of experience at the Fed, and Mr. Potter had overseen the markets group. Their dismissal unsettled some bank employees and raised eyebrows on Wall Street.

The shake-up also left another New York Fed official, Lorie Logan, temporarily in charge of the market portfolio — the Fed’s giant stash of bonds. Ms. Logan is well-respected and often pointed to as a natural fit for the permanent job, but former Fed officials worry that she is now essentially auditioning, which could hinder her ability to make tough or unpopular decisions.

In an interview on Friday, Mr. Williams batted back the critiques, defending the timing of the New York Fed’s recent responses and saying that the bank’s team was working effectively.

Mr. Williams also said he still supported the way the Fed has chosen to guide interest rates — what it calls an “ample reserves” framework. Instead of intervening in markets to push rates into place by balancing out supply and demand, as it did before the financial crisis, the Fed now announces how much interest it will pay on banks’ reserves, and that rate is passed through the financial system.

The approach requires the Fed to hang on to large holdings of government-backed bonds to keep reserves, essentially currency deposits at the Fed, plentiful. Central bankers had thought that they had a long way to go before reserves became scarce. So until last month, they were shrinking their balance sheet and drawing down that supply.

But Mr. Williams said the recent episode showed him that the approach might require higher reserves than he had realized. That is important, because it could hint that the Fed will start growing its balance sheet again soon, something several of Mr. Williams colleagues have signaled over the past week.

Mr. Williams, who has a constant vote on monetary policy decisions made by the Federal Open Market Committee, was mum on the other major question facing policymakers — whether the Fed will cut rates beyond the two moves it has already made. He declined to give any hint about his preferences, arguing that amid uncertainty, the Fed should keep its options open.

Here is a look at how he is addressing the biggest questions facing the New York Fed and the central bank, in a curated, and partly paraphrased, transcript.

New York Times: Some market participants have said the Fed was too slow to intervene amid the recent disruption in overnight repurchase agreements, or repos. Can you walk us through the decision-making process?

Mr. Williams emphasized that data on the Fed’s policy rate, the federal fund rate, comes in slowly and the official figure is released on a delay — it comes out at 9 a.m. the following morning. That figured into the timing, Mr. Williams said, because “we need to explain why we’re intervening — the desk directive is very clear,” he said, referring to the rules set out by the policymaking Fed committee for the New York Fed to follow.

The bank is meant “to conduct open market operations, to keep the federal funds rate in the range.”

He noted that the Fed took market participant feedback from the first intervention into account. Since Sept. 17, it has announced a day in advance that it would provide liquidity to markets and how much. It also -announced on Sept. 20 that it would continue intervening through Oct. 10.

There’s concern on Wall Street that you ousted Mr. Potter and Mr. Dzina, and, in doing so, set a tone at the New York Fed in which experts may not feel comfortable speaking up, especially about repo market issues. What is your response to that?

“It’s just completely wrong, in terms of what actually happened,” he said, noting that when rates started to spike in the market for repos earlier this month, he and Ms. Logan were both in Washington for the Federal Open Market Committee meeting.

“It was all hands on deck. Everyone was working tirelessly to understand what was happening,” he said. “The team operated magnificently, there was no delay, there was no hesitation — there was no, in any way, feeling that people weren’t sharing and discussing things very quickly. This is something that Lorie, Lorie Logan, and her colleagues have been preparing for, for years.”

“We have complete confidence in the teams’ analysis, and conclusions, and it played out exactly the way you would want it to,” he said.

When it comes to the recent repo market turmoil, what does a long-term solution to fixing that look like?

“We have learned something. Despite there being a lot of reserves in the system, they weren’t moving around. They’re lumpy.”

When it comes to the level of bank reserves needed going forward, “any view I had before, based on all the research, and the outreach, and the surveys, my view would be that — that level is probably higher,” Mr. Williams said.

“I think we are seeing that liquidity doesn’t move around as easily, in these situations, which means that if we want interest rates to stay kind of on their own in a narrow range, that we have to make sure we have that amount of reserves to support that.”

“As we think about permanent solutions, the big issues, I think, are: what is the right level of reserves,” he said, along with the possibility of some sort of standing facility to keep markets running smoothly.

Do you have a specific number for how much bigger reserves need to be?

He said he did not, but “I do have on my computer a picture of where reserves were in the summer, and where they were in September,” he said. Earlier this year, “we saw a period where these issues were not manifesting themselves in the way that we saw in the last couple of weeks.”

Is market functioning the primary thing keeping you up at night, or are other aspects of central banking in 2019 more worrying?

“This is very acute. This is very much an issue that arose very quickly,” he said of repo market disruption. But when it comes to monetary policy, “we still have a very interesting point where the economy remains in a very favorable place,” but “there’s a lot of uncertainty — the slowing in global growth continues. Uncertainty around trade and other issues, Brexit.”

You’ve been a big advocate of moving early to forestall risks, rather than waiting. Do you think that means lowering rates again before the end of the year?

“I don’t think that this issue — of the lower bound, and trying to risk manage around it — is pertinent to a specific issue, of what decision we should make at the coming meetings.”

“It’s really more about where the likely trajectories of the U.S. economy are right now,” he said. “The issue we’re grappling with, I’m grappling with, is managing these various uncertainties and some of these downside risks, that do seem more prominent now than normally.”

“I do think we’re in a very good place, on monetary policy, and obviously I supported the decisions we’ve made,” he said. “My view is just to continue doing that assessment.”

Did you forecast another cut when the entire Fed committee released its September economic projections?

“I am not going to answer what my projection, or my expectation is, because I think it’s really pretty uncertain,” he said.

He noted that policymakers’ projections fit a few different narratives. “Maybe the economy will do well, surprise to the upside,” or “the economy takes longer, or doesn’t do as well,” and “I don’t know which of those is going to happen.”

We tend to paint Fed officials a faceless technocrats. But you have obsessions outside of economics, including video games. What video games are you playing?

“I really enjoy playing the online games, so I have been playing this game Dark Souls for the last few months,” he said. “You learn about how teams work together, or don’t work together effectively.”

How do you try to bring your personality — the sneaker-wearing, book-loving, craft beer enthusiast — to your leadership role?

He said he encouraged people to be themselves at work, and, prodded, admitted that “we did change the dress code,” adding, “But people always want to know what the new dress code is. And I always say: It’s use good judgment.”

He seemed disappointed that the change in the dress code at the New York Fed, traditionally a jackets-and-heels institution, was not happening faster.

“People are changing. I’m not telling them what they should do, but people are coming in, dressed as they wish,” he said. Among men, “where you really see it — far fewer ties.”

“Like so many things, it’s a longer journey.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

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Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

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