Federal Reserve

U.S. stocks send a mostly mathematical message

20 Aug 2020

Record highs for the S&P 500 Index can co-exist with a weak and unpredictable economy. Sure, businesses are emerging from shutdowns; on the other hand, joblessness remains high. But stock markets arguably just reflect the new distorted reality – one with squashed interest rates.

At least U.S. GDP trajectory is a known unknown

30 Jul 2020

Output crashed at a 33% annual pace in the three months to June. The current quarter looks less bad. The size and durability of gains in activity and jobs are, though, anyone’s guess. Real-time data speeds measurement. And the Fed, and especially Congress, can shift the outcome.

Can the Fed help close the racial prosperity gap?

22 Jul 2020

Economists advising U.S. presidential hopeful Joe Biden have proposed making racial equity part of the Federal Reserve’s mandate. That chimes with the zeitgeist. But if it means rate-setters ignore too-high inflation for too long, it could hurt those Biden aims to help.

The Exchange: Brave new credit world

21 Jul 2020

The crisis unearthed land mines in the fixed-income market – many of which Arena Investors Chief Executive Dan Zwirn had previously identified. He now explains how to navigate this opaque universe with deep dives on leveraged finance, liquidity crunches and an activist Fed.

Corona Capital: Lockdown diets, Beating the Fed

14 Jul 2020

Concise views on the pandemic’s corporate and financial fallout: Covid-19 is prompting diets for both animal and human; and the Fed takes a hit on a garbage deal.

Biden policy palette would paint Wall Street blue

9 Jul 2020

Proposals from a task force working for the U.S. presidential hopeful would leave high finance worse off, from splitting up banks and raising taxes to giving Americans accounts at the Fed. They’re just ideas, but the broad outlines of a Democratic presidency are becoming clearer.

Fed keeps yield-curve control in back pocket

2 Jul 2020

Minutes of the U.S. central bank's June meeting suggest ambivalence about the policy. It’s unnecessary for now, with bond markets quiescent. If that changes, Japan’s experience shows the tactic can effectively cap long-term interest rates. But it may not deliver higher inflation.

Fed takes from U.S. bank investors in two ways

29 Jun 2020

The biggest lenders will have to set aside $50 bln more in capital under new rules. Goldman Sachs and Wells Fargo are two that may have to cut payouts to shareholders. A bigger drag for investors overall will be the curb on buybacks, which flattered earnings per share for years.

Bank stress tests give the Fed a pass grade too

25 Jun 2020

The biggest lenders would have a minimum capital ratio of 7.7% in a W-shaped virus recovery, the U.S. regulator reckons. The Fed is capping dividends as some banks approach the danger zone. Still, it reassures that after a decade of reforms, they can weather an unforeseen crisis.

Andrew Bailey can freeload on Fed and ECB largesse

18 Jun 2020

The Bank of England boss will buy an extra 100 billion pounds of bonds, but at a slower pace. His peers are being more open-handed. For example, banks just borrowed 1.3 trillion euros from the European Central Bank. Ample global liquidity will help Bailey contain UK debt yields.

Corona Capital: Next crisis, Overvalued markets

16 Jun 2020

Concise views on the pandemic’s corporate and financial fallout: Deutsche Bank analysts sound a warning about future catastrophes, while investors try to square overpriced stocks with their hopes of a recovery.

Fed risks nothing new – yet – on nascent recovery

10 Jun 2020

After early aggressive action, Chair Jay Powell and his colleagues added no more on Wednesday. He committed to keep conditions very easy, but there was no sign of yield-curve control or negative rates. That makes sense given the unknowable trajectory of the post-pandemic upturn.

Inflation is alive and well in equity markets

10 Jun 2020

The May U.S. consumer price index fell 0.1%. So massive money creation doesn’t seem to be generating inflation. But the S&P 500 is up 24% this quarter, IPOs are cruising and bankrupt companies are getting bids, all while unemployment is at 13%. Policymakers probably won’t notice.

Central bankers’ new headache is V-shaped

8 Jun 2020

Fed boss Jay Powell and ECB chief Christine Lagarde have succeeded in crushing yield premiums on risky debt. Now optimism about the post-Covid recovery is pushing up interest rates on benchmark U.S. and German government bonds. Squashing those will be their next battle.

Fed’s credit market duct tape will come unstuck

20 May 2020

Junk bond yields have fallen from March peaks despite dire economic forecasts thanks to Federal Reserve boss Jay Powell’s new asset buying plans. He can’t make bad business models sustainable and may even encourage bad decisions. Investors will be out on a limb if things blow up.

To win, U.S. Treasury needs to be ready to lose

19 May 2020

The Fed’s $600 bln Main Street bailout is still not up and running. Among the hurdles are terms that banks may not like, partly due to the Treasury’s conservativism. Steven Mnuchin told senators he was willing to take losses. It's a necessary investment to reduce future trouble.

Breakdown: Fed is right to nix negative rates

15 May 2020

Futures markets are pricing in a small chance of policy interest rates going below zero even though Jay Powell, chair of the U.S. central bank, rebuffed the idea this week. Europe and Japan are already in that territory. Breakingviews explains why D.C. can afford to say no.

Warren Buffett may have met his match: the Fed

4 May 2020

For the unflappable billionaire, moving Berkshire Hathaway’s annual meeting online and suffering a $50 bln loss from stock swings are minor bumps. His bet-on-America philosophy faces a bigger challenge. Easy money does no favors for an insurance company with $130 bln of cash.

Poor-country central banks will go awry aping Fed

4 May 2020

Rate-setters from Indonesia to Hungary are copying Fed Chair Jay Powell by buying bonds. Others could well follow. That will curb borrowing costs at a time of rising public spending. But these policymakers run bigger inflation and credibility risks than their developed peers.

Central bankers have more cards up their sleeves

29 Apr 2020

Fed Chair Jay Powell and his peers have fashioned new tools to fight the Covid-19 crisis. In future downturns, they could copy the BOJ’s stock buying and, in extremis, consider financing governments directly. Only surging inflation or overt political meddling will hold them back.