The Federal Reserve delivered a sucker punch to retired investors yesterday. The Fed managed to announce an even more dovish decision than Chairman Powell had hinted at in January. Powell took any additional rate increases off the table in 2019 and announced a much faster end to the roll-off of the Fed’s bloated balance sheet than expected. Bonds will stop rolling off the balance sheet in September, with a reduction in the pace of roll-off starting in May. The Fed increased the size of its balance sheet by $3.6 Trillion during the crisis, but it is only taking back about $750 billion of … [Read more...]
Is Europe the Next Japan?
Europe's growth and inflation are slowing, worrying economists and investors that the continent may be the next place to go through "Japanification." James Mackintosh reports: Japanification is back. The slowdown in European growth and inflation has Wall Street once again raising the fear that Europe is turning Japanese, something Bank of America Merrill Lynch argues is now the “most consensus trade in the world.” Japan, of course, has struggled for years with low inflation, and its stock market has never recovered from a crash nearly 30 years ago. Europe has some strong similarities. The … [Read more...]
Will the Fed ever Keep Bernanke’s Promise to Unwind?
Ten years after Ben Bernanke's famous 60 Minutes interview, the Fed is looking less likely than ever to unwind the unconventional monetary policies it used to fight the Financial Crisis. Danielle DiMartino-Booth writes for Bloomberg: If the primary goal was recovery without inflation, the Fed delivered. Since the onset of recovery in June 2009, the core personal consumption expenditures index, which measures the prices paid by consumers for goods and services net of food and energy prices that tend to be more volatile, has been above 2 percent in in just five months in 2018, four in 2012 and … [Read more...]
Bianco: Devaluation to Fund Government Has Never Worked
Writing at Bloomberg, Jim Bianco explains to readers that devaluing a currency to fund government has never worked. The Modern Monetary Theory, a current hot topic among the Socialist-leaning politicians and activists in Washington D.C. today, is very much the devaluation of money to fund government. Bianco writes: MMT is basically a sibling of quantitative easing. While QE allowed the Fed to print money to buy securities such as U.S. Treasuries, mortgage bonds and bad loans, MMT proposes printing money to fund the government. The Fed has hailed QE as a success, bringing the economy back from … [Read more...]
$200 Billion in Foreign Currency Corporate Debt Makes Turkey’s Economy “Vulnerable”
Analysts are worried about the future of Turkey's economy. The country has suffered under doubt about its future during a rift with Washington D.C. over Turkey's proposed missile purchases from Russia. David Gauthier-Villars reports at The Wall Street Journal: The Turkish economy shrank at the end of 2018 and looks set to contract further this year, presenting a challenge for President Recep Tayyip Erdogan ahead of a critical electoral test for his ruling party and amid renewed diplomatic tensions with the U.S. Amid mounting popular discontent triggered by rising food prices and … [Read more...]
Your Retirement Life: Don’t Pay Too Much for Your Big Macs
Since 1986, The Economist has published its Big Mac Index. The index is a lighthearted way of viewing purchasing power across national borders. The theory is that a McDonald's Big Mac uses the same ingredients and labor from one country to another, so when prices are compared in dollar terms, the differences in the purchasing power of money between locations is easy to see. In the latest reading, Russia has the cheapest Big Mac, at only $1.65. Fluctuating currency valuations can have a big impact on the index when dealing with different countries. When comparing the U.S. states, however, … [Read more...]
The Surge in American Economic Growth Could Pay for Tax Cuts
Phil Gramm and Michael Solon explain in The Wall Street Journal's Opinion section, that the Trump tax cuts are on their way to paying for themselves with increased economic activity. They writes: For a midterm report card on the economy under President Trump, take a look at two recent government reports. The Commerce Department reported Thursday that real gross domestic product grew by 3.1% from the fourth quarter of 2017 to the fourth quarter of 2018—the largest rise in 13 years. And last month the Congressional Budget Office reported that even if the current surge in economic growth isn’t … [Read more...]
Is Fed Policy Sparking Socialism?
The Financial Times' David McWilliams makes a convincing case that what has empowered "millennial socialism" is the policies of the Federal Reserve. He writes: Is Ben Bernanke the father of Alexandria Ocasio-Cortez? Not in the literal sense, obviously, but in the philosophical and political sense. As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in … [Read more...]
The 3 Disturbing Implications of the Fed’s Flip
The Fed was on a good path last year. After nearly a decade of punishing savers with zero and ultra-low interest rates, Chairman Jerome Powell oversaw a move toward more normal monetary policy. From his start in January of last year through December, the Fed hiked interest rates a total of four times and allowed its asset portfolio to fall by about $325 billion. Over Bernanke’s eight years at the helm of the Fed, interest rates were increased a grand total of three times. Yellen wasn’t much better. It took here four years to get in five hikes. Powell did four in one year. Powell’s more … [Read more...]
After Long Declines, Branded Consumer Companies Comfortable Raising Prices
Low wage and economic growth has been holding back the ability of branded consumer products companies to raise prices for a long time. But economic gains in the last couple years have given big consumer companies the confidence to once again increase prices for their products. With wages growth and consumer confidence up, it is becoming easier for consumer companies to increase the prices paid for their premium products. Aisha Al-Muslim reports for The Wall Street Journal: Makers of household staples from diapers to toilet paper are set to raise prices again this year after already hiking … [Read more...]
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