DAVOS, Switzerland |
Fri Jan 27, 2012 11:24am EST

DAVOS, Switzerland (Reuters) – U.S. Treasury Secretary Timothy Geithner pressed Europe on Friday to boost its bailout fund resources, citing the euro zone debt crisis and oil prices as the two main factors influencing the pace of the United States’ economic upturn.

The U.S. economy is growing at an annual rate of around 2-3 percent, Geither told the World Economic Forum in Davos, adding that it still faces big challenges to repair damage wrought by the financial crisis.

Earlier on Friday, euro zone finance officials voiced optimism at the Forum that key building International Monetary Fund could help support Europe through its debt crisis if the euro zone boosts its bailout funds, or “firewall,” he said.

“Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall and that is going to demand a bigger commitment,” Geithner told the Forum.

“If Europe is able and willing to do that we believe the IMF is ready to play a constructive role,” he added. “I think you’ll see the IMF (be) very supportive in those efforts but not as a substitute for blocks to resolve the sovereign debt crisis (that) are gradually fitting into place.

The health of U.S. business was better than expected, Geithner said, dismissing the suggestion that tighter regulations were hampering growth.

“Profitability across the US economy is very high,” he added. “What is holding the US economy back still is the aftershocks of the financial crisis and the fiscal pressure on governments.”

Turning to Iran, he said Washington’s drive to cut Iran’s oil exports was getting excellent support from Europe and that there were positive signs from China too.

“Even over the last 6 months you’re seeing a substantial intensification in (cutting) dependence on Iranian oil and my sense is also that China wants to be part of that effort because it is in China’s interests not to see Iran undo the delicate balance in the Gulf,” he added.

On his own future, Geithner reaffirmed that he would not expect to be asked to continue as Treasury chief if President Barack Obama wins re-election.

“Generally anybody who takes these jobs serves at the pleasure of the president,” he said.

“When he asked me to stay when I thought it was the right time to leave, I agreed to stay and I agreed I would stay to the balance of this term. He accepted that aspiration of mine, and that’s where it’s going to come out, I think.”

Geithner declined to say what he would do next: “That feels like a long way away.”

(Reporting by Paul Carrel and Janet McBride; editing by Patrick Graham)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/5tazmZUaTRQ/us-davos-geithner-idUSTRE80Q0MT20120127

By Jonathan Spicer

NEW YORK |
Fri Jan 27, 2012 10:32am EST

NEW YORK (Reuters) – Much work remains to maximize U.S. employment and stabilize prices, and the central bank will do its part, an influential Federal Reserve official said on Friday.

The pace of the U.S. economic recovery remains “sluggish” and is likely to slow somewhat this year, said New York Fed President William Dudley. Unemployment is likely to remain “unacceptably high” for some time, he added, while inflation is likely to be below the Fed’s new 2-percent objective for several years.

“Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability,” Dudley told reporters in a regular briefing.

The Fed, which has kept interest rates near zero for more than three years, “has done and will continue to do its part in supporting the recovery – but it is not all-powerful,” he added.

“Other complementary policy actions in housing, fiscal policy and structural adjustment or rebalancing of the economy will be essential if we are to achieve the best available recovery.”

Aside from the low rates, the Fed has also bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades. Yet the recovery has been slow and the outlook issued by the Fed this week was bleak, leading the central bank to say it expects to keep rates “exceptionally low” at least through late 2014.

Dudley, a permanent voter on the Fed’s policy-setting committee, added that he expects “moderate” growth this year, and warned the risks are skewed to the downside in part because of Europe’s debt crisis.

The economy continues to operate with “significant excess slack,” he said, adding: “Inflation has retreated and may be headed down further.”

On Wednesday, Chairman Ben Bernanke said the Fed stood ready to offer more stimulus in the form of bond purchases if inflation remains below 2 percent – a formal target unveiled earlier that day – and if unemployment, now at 8.5 percent, remains high.

The speech by Dudley, a policy dove focused on driving down the high jobless numbers, could add confidence to those who, since the Wednesday meeting, see another round of asset purchases – including mortgage-backed securities – as all but inevitable.

Still, the slow overall recovery has cast some doubt on the U.S. central bank’s far-reaching strategy, with some, including congressional Republicans, warning that the massive quantitative easing efforts over the last few years could crimp the Fed’s ability to tighten policy when the time comes.

The Fed’s ultra easy monetary policy stance, to nurse the recovery, got some support from data on Friday showing U.S. gross domestic product expanded at a 2.8 percent annual rate in the fourth quarter of 2011.

It was a sharp acceleration from the 1.8 percent clip of the prior three months and the quickest pace since the second quarter of 2010. But it was a touch below economist expectations in a Reuters poll for a 3-percent rate, and nearly 2 percentage points were attributed to the build-up in business inventories.

(Reporting by Jonathan Spicer; Editing by Padraic Cassidy)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/picI2nRdKsQ/us-usa-fed-dudley-idUSTRE80Q18E20120127

NEW YORK |
Fri Jan 27, 2012 10:02am EST

NEW YORK (Reuters) – Americans were more optimistic about potential improvements in the job market in January, pushing consumer confidence to its highest level in nearly a year, a survey released on Friday showed.

The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment rose to 75.0 from 69.9 the month before. It was the highest level since February 2011.

That was better than the preliminary January reading of 74.0 and topped the median forecast of 74.1 among economists polled by Reuters.

“The recent gains in confidence are now critically dependent on continued gains in employment,” survey director Richard Curtin said in a statement.

“As long as modest employment gains are forthcoming, the data suggest real consumer spending will post a gain of 2.1 percent in 2012.”

The survey’s barometer of current economic conditions gained to 84.2 from 79.6, while the gauge of consumer expectations climbed to its highest level since May 2011 at 69.1 from 63.6.

A record 31 percent of consumers spontaneously reported hearing about recent employment gains this month. However, respondents were not as optimistic about the unemployment rate, with half expecting it to remain unchanged.

Americans also remained gloomy on their own financial situation, and most were skeptical about the prospective strength of the economy. Confidence in government policies was also stuck near an all-time low.

The survey’s one-year inflation expectation rose to 3.3 percent from 3.1 percent, while the survey’s five-to-10-year inflation outlook held steady at 2.7 percent.

(Reporting By Leah Schnurr; Editing by Chizu Nomiyama)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/EgxAkq2anrg/us-usa-economy-sentiment-idUSTRE80Q17K20120127

By Jason Lange

WASHINGTON |
Thu Jan 26, 2012 4:26pm EST

WASHINGTON (Reuters) – New orders for manufactured goods rose in December and a gauge of future business investment rebounded, showing the economy ended the year with more momentum than previously thought.

Other reports on Thursday showed new claims for jobless benefits rose moderately last week, suggesting the labor market was healing only slowly, while new U.S. single-family home sales unexpectedly fell in December.

The Commerce Department said orders for durable goods climbed 3.0 percent last month, boosted by a surge in aircraft orders. Economists had forecast orders rising 2.0 percent.

“There’s some momentum here,” said Jacob Oubina, an economist at RBC Capital Markets in New York. “Heading into the first quarter, the momentum is going to be pretty decent.”

Durable goods range from toasters to big-ticket items like aircraft which are meant to last three years and more.

The data suggested U.S. companies could be growing more willing to invest the $2 trillion pile of cash they amassed in recent years.

Orders for capital goods outside defense and excluding aircraft, which are a proxy for business spending plans, climbed a steeper-than-expected 2.9 percent. They had declined the previous two months, and the U.S. Federal Reserve warned on Wednesday that business investment had cooled.

Also pointing to rising investments, shipments of orders within that category, which go into the calculation of gross domestic product, rose 2.9 percent after declining 1.0 percent in November.

SLOW HEALING

The overall increase in orders was buoyed by an 18.9 percent jump in orders for civilian aircraft. Boeing received 287 orders for aircraft during the month, according to the plane maker’s website, up from 96 in November.

The Conference Board said its index of future U.S. economic activity rose to a five-month high in December as labor market conditions improved.

U.S. stock prices .SPX fell, with housing-related stocks among the top decliners after the report on new home sales dented optimism that the housing market may have reached a bottom. Prices rose for U.S. Treasury debt.

In a separate report, the Commerce Department said new U.S. single-family home sales unexpectedly fell in December for the first time in four months, while the median home price dropped.

The housing market remains constrained by high unemployment, falling prices and an oversupply of unsold homes following a bust that triggered the 2007-09 recession. Despite the decline in sales, there were a record low 157,000 new homes on the market last month.

Labor Department data showed new U.S. claims for unemployment benefits rose last week but the underlying trend continued to point to improving labor market conditions.

Initial claims for state unemployment aid increased 21,000 to 377,000. The four-week moving average for initial claims, which provides a better view of trends, fell 2,500 to 377,500.

“We’re still very much established below 400,000, continuing to suggest that there is modest improvement in the labor market,” said Lindsey Piegza, an economist at FTN Financial in New York.

On Wednesday, Fed Chairman Ben Bernanke said the U.S. central bank could do more to help growth if the economy falters, and the Fed indicated interest rates would likely remain near zero until late 2014.

Among the darker clouds looming over the U.S. economy is a sovereign debt crisis in Europe that is widely seen triggering a recession in the euro zone.

Greece held negotiations on a debt swap with private creditors in Athens on Thursday aimed at averting a chaotic default that could send shockwaves through the global economy.

Increased consumer spending and efforts by companies to restock their shelves likely led the U.S. economy to accelerate at the end of 2011 although many economists expect some of that strength to wane early this year.

A report due Friday is expected to show the economy grew at a 3.0 percent annual rate in the fourth quarter, up from 1.8 percent in the previous period.

(Additional reporting by Lucia Mutikani in Washington and Emily Flitter and Karen Brettell in New York; Editing by Andrea Ricci and James Dalgleish)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/tfY_Dl-29gc/us-economy-idUSTRE80P0XT20120126

By Ann Saphir and Jonathan Spicer

CHICAGO/NEW YORK |
Thu Jan 26, 2012 12:45am EST

CHICAGO/NEW YORK (Reuters) – The Federal Reserve has moved closer to embarking on a new round of its controversial money-pumping after the central bank and its chairman Ben Bernanke highlighted a grim outlook for the U.S. economy.

Bernanke on Wednesday opened the door a bit wider for the Fed to return to buying securities in the months ahead to buttress a weak recovery and keep inflation from slipping too far below its newly adopted 2-percent target.

“It sounds like the finger is on the trigger,” said Thomas Simons, a money market economist at Jefferies Co.

The Fed’s announcement that it was unlikely to raise interest rates until at least late 2014, more than a year beyond its previous guidance, immediately pushed down Treasury bond yields and Bernanke’s comments to the media raised expectations of a further round of so-called quantitative easing, or QE3.

It remains to be seen if the potential political backlash proves too daunting.

The prospect of the Fed pumping yet more money into the U.S. economy was seized upon by Republican hopeful Newt Gingrich to slam President Barack Obama’s record. That highlighted the political pitfalls for the Fed in an election year.

Barring an unexpected pick-up in inflation or the U.S. economy suddenly kicking into a higher gear, Bernanke said it was logical that the Fed should look at ways to do more to help.

“The framework makes very clear that we need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation,” he told a quarterly news conference.

“Probably the main take-away from the press conference is the sense conveyed by Bernanke that it would not take much of a disappointment in growth or inflation to get the Fed to start another round of QE,” said Michael Feroli, chief U.S. economist at J.P. Morgan.

“In fact, from his answers it’s not even clear any disappointment would be necessary to see more QE,” Feroli wrote in a note, adding he was not forecasting another round of asset purchases even if the bar for action was low.

The Fed in late 2008 slashed interest rates to near zero and has since bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.

Yet the recovery has been slow and the outlook issued by the Fed on Wednesday was bleak.

With core inflation now at 1.7 percent and Fed officials forecasting unemployment to stay above 8 percent this year, many analysts took Bernanke’s comments to mean QE3 is all but inevitable.

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News conference after FOMC: link.reuters.com/xud36s

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MORTGAGES

The Fed has trained its sights on the stalled housing market in recent months, so any move to QE3 is most widely expected to involve buying mortgage securities to help bring down further already record-low mortgage interest rates.

Some economists said Bernanke may wait until the end in June of the Fed’s “Operation Twist”, which involves selling short-term bonds and buying longer-term ones in its $2.9 trillion portfolio to push down long-term interest rates further.

Bernanke may also want to wait until the market has absorbed his sweeping changes in communications policy which included the Fed adopting an explicit inflation target and releasing the interest rate projections of its policymakers for the first time on Wednesday.

Buying more mortgage-backed securities would drive down longer-term rates on mortgages with a view to countering what remains a drag on a U.S. economy still struggling to emerge from the worst recession in generations.

“I think it could happen any time now, based on the language that we saw today,” said Eric Stein, a portfolio manager at Eaton Vance in Boston.

“I would think the first thing would be squarely focused on purchasing mortgage-backed securities, partially because Treasury yields are already so low, and housing is one of the major issues.”

POLITICAL PITFALLS

The blowback from a heavy round of MBS purchases could be just as fierce as that provoked by the Fed’s second round of quantitative easing which was announced in November 2010.

QE2, which targeted Treasuries, attracted sharp criticism from Republicans who warned it could fuel inflation and crimp the Fed’s ability to tighten policy eventually, and who accused Bernanke of going beyond the central bank’s mandate.

“People are now expecting more QE, and that would be in mortgages,” said John Canally, investment strategist and economist at LPL Financial in Boston. “I think economically they (the Fed) would want to do that, but I don’t know if politically they can withstand the forces against it.”

Republican presidential candidates have repeatedly criticized the Fed and Bernanke on the campaign trail. Asked about the Fed’s latest statement, Gingrich said it was “a sign of the failure of the entire Obama program” that Bernanke is bracing for such weak economic growth that he will have to keep rates low for so much longer.

At the same time the Fed is “putting in future inflation expectations,” Gingrich told reporters in Florida on Wednesday. “It’s more of Bernanke laying down a very bad future.”

Foreign countries slammed the Fed’s previous bond-buying programs, saying they artificially weakened the U.S. dollar and hurt their exporters. Brazil’s finance minister talked of a “currency war.”

Some economists say the political pressure on the Fed may prove too heavy.

“A third round of QE is still beyond them – or maybe the chairman simply doesn’t have the stomach for the congressional mauling that further asset purchases would have precipitated….,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Nonetheless, many others expect that the Fed will act again.

Economists at 12 of 18 primary dealers, the large financial institutions that do business directly with the Fed, believe the central bank will undertake further quantitative easing, according to a Reuters poll after Bernanke’s news conference.

Some top investors have placed their bets, too.

Bill Gross, who runs the world’s largest bond fund, has ramped up purchases of mortgage-backed securities which at the end of November accounted for 43 percent of his holdings. The self-styled “bond king” said last month that any QE3 would likely be focused on the housing sector.

Keith Wirtz, chief investment officer at Fifth Third Asset Management, with $18 billion in assets, said the Fed had gone “all in” with its promise to keep rates low through late 2014, and predicted that any rise in long-term borrowing costs would push the Fed to buy more bonds.

“Brace for QE3 if rates start to move higher on the long end,” he said.

(Reporting by Ann Saphir and Jonathan Spicer; Additional reporting by Jennifer Ablan, Sam Youngman, Rodrigo Campos and Karen Brettell; Editing by Kim Coghill)

Article source: http://feeds.reuters.com/~r/reuters/GCAeconomicNews/~3/-WKWhniIYwM/us-usa-fed-idUSTRE80N1DQ20120126