The Federal Reserve has said that it stands ready for more stimulus if needed. Just the hint of more easing has bolstered the markets. Very often the anticipation of an action creates market movement. As an example, bond market prices have rallied, with the 10-year note yield at historic lows.

The Fed's point man for implementing policy decisions is Brian Sack, who heads the N.Y. Fed's open market operations. Sack gave a speech in California in which he gave us more specific details about what to expect when the Fed starts easing.

Continue reading What Can We Expect When the Fed Starts QE2?

What Can We Expect When the Fed Starts QE2? originally appeared on BloggingStocks on Tue, 05 Oct 2010 09:30:00 EST. Please see our terms for use of feeds.

In what could be determined as the understatement of the day, Federal Reserve Bank of Philadelphia President Charles Plosser told a group assembled at a banking forum in Prague that monetary policymakers must be vigilant to ensure rules-based policy decisions aren't skewed by poor data.

Plosser listed problems that are associated with measuring output gaps. An output gap is defined as the difference between the actual output of an economy and the output it could achieve at its most efficient. An output gap can be positive or negative (positive means actual output is more than full-capacity output and vice versa for negative). Plosser believes that output gaps and/or unemployment gaps could appear bigger than they are, which could lead to incorrect decisions as it comes to inflation. Plosser believes that "Explaining such decisions about the appropriate stance of monetary policy will be challenging, and central bankers will need to communicate with the public about these issues well in advance of their decisions to ensure that their policy actions are not misunderstood."

Continue reading Fed's Plosser Says That Poor Data Can Skew Policy

Fed's Plosser Says That Poor Data Can Skew Policy originally appeared on BloggingStocks on Tue, 23 Mar 2010 13:30:00 EST. Please see our terms for use of feeds.

In the 1960s, President Lyndon Johnson's economic/social policy, the Great Society, came up against a counterforce and competing claim few in public policy circles at that time had expected: Lyndon Johnson himself.

Johnson, in a decision that would alter U.S. society and the cultural landscape, chose to escalate U.S. involvement in the Vietnam War, and vastly increased government defense spending. The spending, when combined with spending for the Great Society, posed the question: "Could the U.S. economy tolerate increased government spending for defense and for social programs without an increase in inflation?" This is known in economics circles as the "guns and butter" question.

Continue reading Guns and butter: Can the U.S. have both at the same time?

Guns and butter: Can the U.S. have both at the same time? originally appeared on BloggingStocks on Mon, 14 Dec 2009 13:20:00 EST. Please see our terms for use of feeds.

When you spend $787 billion, there's a lot of pressure to show results. So, there's no surprise that success is being proclaimed across the country. States are saying that they've used the federal stimulus package money to create or save more than 388,000 jobs this year. Teachers, construction workers and other professions have realized the upside of stimulus cash according to reports from 33 states and Puerto Rico, with the remainder of the results being released on Friday.

Of course, the numbers "should be taken with a grain of salt," says Ethan Pollack of the Economic Policy Institute. The states were tasked to count the jobs created or protected, but the results have been of dubious accuracy. This doesn't mean the stats can't provide fodder to people on both sides of the aisle.

Columbia Business School's Frank Lichtenberg says the data shows a solid economic impact, and the Obama administration's Council of Economic Advisors believes the stimulus spending has taken care of between 600,000 and 1.1 million jobs.

And, there are those who disagree.

Continue reading Race to declare victory for stimulus

Race to declare victory for stimulus originally appeared on BloggingStocks on Wed, 28 Oct 2009 16:40:00 EST. Please see our terms for use of feeds.

Continue reading The beggars of Wall Street

The beggars of Wall Street originally appeared on BloggingStocks on Mon, 06 Oct 2008 10:58:00 EST. Please see our terms for use of feeds.

Recently CNN/Money posted an article called Who gets rich off $3 gas - who doesn't, which I thought I would bring to your attention. The rising cost of gasoline at the pump, now $4 in some places, is hurting many people on fixed incomes, like seniors and students, and those commuting long distances to work, or for work.

There is plenty of public fury to go around and while OPEC and the big oil companies get a lot of the blame, your local gasoline station owner has to face the heat close up and personal, even though on this food chain they benefit the least from rising prices.

The rescuing of the domestic financial markets (banks and Wall Street investment houses) by sacrificing treasury notes, exacerbating deficits, all the while lowering the prime rate and discount rate, have pushed oil prices higher, as oil producers to their chagrin, are paid in devalued dollars and are trying to maintain equilibrium.

Continue reading Serious Money: Who gets what from $3/$4 gas?

Serious Money: Who gets what from $3/$4 gas? originally appeared on BloggingStocks on Wed, 19 Mar 2008 17:10:00 EST. Please see our terms for use of feeds.

My colleague Trey Thoelcke posted a story on Friday regarding Presidents Bush's concern that the Federal government should not "overreact" to our current economic plight for fear of doing more damage than good.

The president's concern struck me as odd because most folks having an IQ higher than their age would probably agree that President Bush overreacted in Iraq, and underreacted at home. Thus increasing the probability that we would fall into an economic quagmire that the best and brightest would have difficulty escaping.

I think I am being very generous when I say "increasing the probability" because many on the left and on the right of the political spectrum would be much more frank and say Dubya, you own this one pal!

That being said, one might argue that Bush has his rights and his lefts mixed up, as well as his rights and his wrongs. I happen to agree with the president that the federal government could overreact (and has) and do the wrong things -- with bipartisan support no doubt. For example I think the $156 billion tax rebate is very bad policy, not helping anyone and hurting everyone -- see Serious Money: Stimulate productivity not consumption. I hope anybody reading that particular Serious Money post finds it worthy of starting an e-mail storm because not enough folks understand this point.

Continue reading Bush overeacted in Iraq and undereacted at home

Bush overeacted in Iraq and undereacted at home originally appeared on BloggingStocks on Sun, 16 Mar 2008 15:10:00 EST. Please see our terms for use of feeds.

As a registered independent who voted for Obama on Super Tuesday, I was interested in reading BusinessWeek's take on Obama's likely impact on the U.S. economy. Its conclusion is that Obama is thoughtful and refreshing and is willing to work with business leaders, many of whom may reject him because he does not hew to the Republican line on taxes.

Last Friday, while Guest Hosting CNBC's Squawk Box, I spoke with Obama's economic advisor, University of Chicago professor Austan Goolsbee. He made two points that I found interesting. First, he said that Obama is very enthusiastic about the prospects for the U.S. economy and the stock market. Second, he suggested that Obama was months ahead of Hillary Clinton in proposing an economic stimulus package.

I asked Goolsbee what he thought was the cause of the economic slowdown. He thought the problem was the cash-strapped consumer and that tax rebates were the solution. I argued that the problem is that banks lack sufficient capital to offset the write-downs they're taking in the wake of the evaporation of demand for the Collateralized Debt Obligations (CDOs) they hold. Goolsbee thought this was a secondary problem and did not embrace my proposal to recapitalize the banks.

Continue reading How President Obama will shape the American economy

How President Obama will shape the American economy originally appeared on BloggingStocks on Wed, 13 Feb 2008 11:15:00 EST. Please see our terms for use of feeds.

What does the coming year hold for the economy? BloggingStocks' Peter Cohan considers five issues that will factor heavily in 2008.

Sovereign Wealth Funds (SWFs) are estimated to be between $2 trillion and $15 trillion. That's a wide range, but even at the low end, it's a lot of money. The SWFs are potentially economic and political Trojan horses. They are using the current problems in the credit markets as a chance to buy stakes in U.S. banks for relatively paltry sums. It remains to be seen whether they are getting in at the bottom or whether they're foolishly buying in way too soon.

However, if they get big enough stakes in strategic industries in the U.S., they will be in a position to influence U.S. policy. For example, if the funds do not like U.S. Middle East policies, they can threaten to withdraw their capital. If that capital is hard to replace, the U.S. will find itself needing to choose between imperiling the survival of its banking system or changing its foreign policies.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Is there a true risk from sovereign petrodollar funds and the central Asian banks? originally appeared on BloggingStocks on Mon, 17 Dec 2007 16:00:00 EST. Please see our terms for use of feeds.

Protectionism politics originally appeared on BloggingStocks on Wed, 10 Oct 2007 15:15:00 EST. Please see our terms for use of feeds.

In yet another sign of the growing pressure on consumers, retail sales rose 0.3% in August, less than the 0.5% economists have expected. Excluding autos, sales fell 0.4%. This data will likely pressure stocks and underscore the call from Wall Street for the Federal Reserve to cut interest rates at the September 18 meeting of the Federal Open Market Committee. (Update: Consumer confidence remained low in September, further bolstering the case for a rate cut).

There are plenty of economic signs for investors to ponder. The Wall Street Journal is reporting that the amount of borrowing by banks under the Fed's primary credit program surged to $7 billion, the highest level since just after 9-11. Prices for imported goods unexpectedly fell in August because of declines in oil and natural gas prices, providing a temporary check on inflation, according to Bloomberg News.

Continue reading Stocks slide on worse-than-expected retail sales

Stocks slide on worse-than-expected retail sales originally appeared on BloggingStocks on Fri, 14 Sep 2007 09:45:00 EST. Please see our terms for use of feeds.

Everyone and their brother and sister on Wall Street and CNBC thinks that the Federal Reserve should cut interest rates yesterday. The problem is that the Fed doesn't seem to agree with that view.

Data released in the Beige Book regarding economic conditions around the country said that the credit crunch had a "limited" impact on the economy where "activity has continued to expand." Many investors read that to mean that there is no rush for a rate cut and sent the Dow Jones industrial average down more than 171 points last I checked.

Bloomberg News noted that, "The report suggests that the housing recession and global financial-market turbulence stemming from U.S. subprime-mortgage defaults has yet to have broader effects on the world's largest economy."

It seems like the Fed is trying to wean investors from expecting it to ride to the rescue with interest rate cuts whenever things go wrong. The Wall Street Journal (subscription required) argues that while a Fed rate cut may still come in two weeks, "officials may not see the same need for aggressive easing that financial markets expect."

This sounds like investors may be getting some tough love for Bernanke which though unpleasant for now may be the best thing in the long run.

Stocks tank after Fed Beige Book doesn't hint of a rate cut originally appeared on BloggingStocks on Wed, 05 Sep 2007 15:45:00 EST. Please see our terms for use of feeds.

Continue reading Relax, you're in Bush country

Relax, you're in Bush country originally appeared on BloggingStocks on Fri, 10 Aug 2007 12:45:00 EST. Please see our terms for use of feeds.