federal reserve

Sweet Nothings from the Federal Reserve FOMC Statement

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So much for Helicopter Ben swooping in and enacting more quantitative easing. The FOMC statement tells us nothing we don't already know. Nor does the Fed have any more magic bullets. The economy sucks, we have a jobs crisis and about the only thing new is a mid-2013 end date for keeping interest rates extraordinarily low:

The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

There were three dissenters, out of 10, on the decision to guarantee a low federal funds for a two year time period, preferring no defined time window.

What one can gleam from this is the Federal Reserve now believes this economic malaise will continue for two more years. We've known that but now it's official, the Fed is acknowledging the long, protracted economic disaster which is the new normal of America.

The good news is the Fed at least acknowledges our terrible economy, although their previous GDP, unemployment and growth projections were much happy talk.

No QE3 After All

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QE3 has been predicted by many as the next round of quantitative easing. The Federal Reserve's latest FOMC meeting minutes suggest no more quantitative easing, beyond the competition of QE2, according to Bloomberg:

Federal Reserve officials signaled they’re unlikely to expand a $600-billion bond purchase plan as the recovery picks up steam and the threat that inflation will fall too low begins to wane.

The economy is on a “firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said in a statement yesterday after a one-day meeting in Washington. While commodity prices have “risen significantly,” inflation expectations have “remained stable.”

The actual Federal Reserve FOMC press release said:

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

Fed vs. Fed

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The Federal Reserve has a dissident in their midst who is about to get FOMC voting rights. spyvsspy Philadelphia Federal Reserve President Charles I. Plosser gave one wallop of a speech making it very clear he disagrees with the Federal Reserve bailing out the Banksters and the Housing Market. He also disagrees with intervention in assets as well as giving the illusion the Federal Reserve can really do something about unemployment. From the speech:

I have suggested that the System Open Market Account (SOMA) portfolio, which is used to implement monetary policy in the U.S., be restricted to short-term U.S. government securities. Before the financial crisis, U.S. Treasury securities constituted 91 percent of the Fed’s balance-sheet assets. Given that the Fed now holds some $1.1 trillion in agency mortgage-backed securities (MBS) and agency debt securities intended to support the housing sector, that number is 42 percent today. The sheer magnitude of the mortgage-related securities demonstrates the degree to which monetary policy has engaged in supporting a particular sector of the economy through its allocation of credit. It also points to the potential challenges the Fed faces as we remove our direct support of the housing sector.

Federal Reserve Turns a Profit , Ignore the Man Behind the Curtain

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wizardbehindcurtain.jpegWho says the Federal Reserve isn't good for something? They just made $80.9 billion dollars in 2010.

The Federal Reserve Board on Monday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $78.4 billion of their estimated 2010 net income of $80.9 billion to the U.S. Treasury. This represents a $31.0 billion increase in payments to the U.S. Treasury over 2009 ($47.4 billion of $53.4 billion of net income). The increase was due primarily to increased interest income earned on securities holdings during 2010.

On the other hand, what they made the money on are securities from Freddie Mac and Fannie Mae, or GSEs, U.S. Treasuries and those infamous mortgage backed securities or toxic assets them purchased.

Federal Reserve Slashes Debit Card Transaction Fees in Proposal

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If you are not aware, Mastercard, Visa currently charge some nasty fees to retailers every time you use your debit card. Same is true for credit cards. The Federal Reserve has proposed some new rules on debit card fees. They propose to cut transaction fees to 12¢ per transaction. Currently it costs retailers 44¢ on every single use of a debit card for purchases. The Federal Reserve also proposed to kill the debit transaction network monopoly system. A transaction network is where your data goes in order to debit your bank account after you swipe that plastic.

The Board is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). Under both alternatives, circumvention or evasion of the interchange fee limitations would be prohibited. The Board also is requesting comment on possible frameworks for an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention.

If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011.

Federal Reserve Releases Bail Out Details

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The Federal Reserve released 21,000 transactions, mainly short term loans, from the financial crisis.

Many of the transactions, conducted through a variety of broad-based lending facilities, provided liquidity to financial institutions and markets through fully secured, mostly short-term loans. Purchases of agency mortgage-backed securities (MBS) supported mortgage and housing markets, lowered longer-term interest rates, and fostered economic growth. Dollar liquidity swap lines with foreign central banks helped stabilize dollar funding markets abroad, thus contributing to the restoration of stability in U.S. markets. Other transactions provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system.

As financial conditions have improved, the need for the broad-based facilities has dissipated, and most were closed earlier this year. The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs. These facilities were open to participants that met clearly outlined eligibility criteria; participation in them reflected the severe market disruptions during the financial crisis and generally did not reflect participants' financial weakness.

Here's what's available from the Fed's press release:

  • Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
  • Term Asset-Backed Securities Loan Facility (TALF)
  • Primary Dealer Credit Facility (PDCF)

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