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US economy standing strong, despite global slowdown fears
AP OCTOBER 17, 2014 7:36AM
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Traders on the floor of the New York Stock Exchange.
Traders on the floor of the New York Stock Exchange. Source: AP
BEYOND the turmoil shaking financial markets, the US economy remains sturdier than many seem to fear.

The Dow Jones industrial average has lost 874 points since October 8, largely over worries about another recession in Europe, a slowdown in China and world-spanning crises that include the Ebola outbreak and the rise of the Islamic State.

Yet economists aren’t reducing their forecasts for the US economy. The International Monetary Fund, which heightened jitters by cutting its forecasts for global growth, has actually upgraded its outlook for the United States.

Economists say the troubles around the world aren’t enough to derail a US economy that’s gaining strength from a stronger job market, falling fuel prices, lower mortgage rates and improvements in household finances and confidence.

“The US economy is nicely insulated from most global events,” says Eric Lascelles, chief economist for RBC Global Asset Management.

Mark Zandi, chief economist of Moody’s Analytics, is keeping his forecasts for US growth at 2.2 per cent growth for this year and 3.4 per cent for 2015. He calls the plunge in stock prices a “garden-variety correction” for an inflated market, rather than evidence of a faltering economy.

The IMF spooked investors last week by cutting its forecast for global economic growth this year to 3.3 per cent from 3.4 per cent. Even so, the IMF now expects the US economy to grow 2.2 per cent this year, up from its June forecast of 1.7 per cent.

Underscoring the bright outlook, the US government said overnight (AEDT) that the number of Americans who applied last week for unemployment benefits — a figure that reflects the number of lay-offs — reached a 14-year low. Once you factor in the growth of the US labour force, the latest number means the likelihood of being laid off is the lowest it’s been on government records dating to the early 1970s.

In addition, the Federal Reserve said that US manufacturing production rose last month after tumbling in August.

For now, investors remain so worried about weakness across the globe that they’ve been dumping stocks of every geographic or industry origin.

Near the top of their worries is Europe. The 18-country eurozone’s economy failed to grow at all in the second quarter of the year and might not do so in the third quarter, either. The IMF shaved its forecast for eurozone growth to 0.8 per cent this year from its previous forecast of 1.1 per cent.

Speaking at the Economic Club of Washington two weeks ago, Jeffrey Zients, director of the White House’s National Economic Council, called Europe “our No. 1 area of concern” and said the continent could slide into its third recession since 2008.

In particular, the darkening picture in Germany — the heart of business activity for the region — is raising fears. After contracting 0.2 per cent in the second quarter compared with the previous three months, Germany’s economy risks shrinking again in the third quarter. That would put its economy technically in recession, as defined by two consecutive quarters of economic contraction.

Still, economists downplay Europe’s effect on the American economy. For one thing, Europe’s struggles aren’t new. It’s been flailing for years. All the while, the US economy has been steadily gaining momentum.

Overall, America has surprisingly little economic exposure to the world’s troubles. Exports account for less than 14 per cent of US activity, one of the lowest such shares in the world.

It’s American consumers who drive the US economy. They account for nearly 70 per cent of the economy. And in many ways, things are looking up for consumers.

Gasoline prices in the United States have fallen to an average $US3.16 a gallon, the lowest price since 2011. Lower gas prices free up money for consumers to spend on other things — from clothing and restaurant meals to furniture and appliances — that help drive growth.

What’s more, the panic on Wall Street has delivered a bonus to homebuyers or homeowners who want to finance: as investors have fled to the safety of US Treasurys, they have helped drive down long-term interest rates, including for mortgages. Mortgage giant Freddie Mac said the average rate on a 30-year fixed mortgage hit 3.97 per cent this week — its lowest rate since June 2013.

Consumers’ finances are in better shape, too, because many Americans have pared debt.

All that said, the United States won’t emerge unscathed from the stalling global economy. Companies that make up the Standard & Poor’s 500 index collectively generate 46 per cent of their revenue overseas, according to S & P Dow Jones Indices. Their sales and earnings could be squeezed by slower growth in Europe and China. Eventually, if the trend continued, they might have to scale back hiring or cut jobs.

The powerhouse Chinese economy is expected to grow 7.4 per cent this year, down from 7.7 per cent in 2013, according to the IMF. The slowdown could hurt US companies like 5+design, an architectural firm in Hollywood, California, that does 70 per cent of its business in China.

“We’ve backed off new hires (in China) until we get a greater sense of where things are going,” says Michael Ellis, the firm’s managing principal. Still, he says his firm’s business in China is likely to increase.

“When China slows, it’s still growing faster than anywhere else,” Mr Ellis says.

The biggest threat to the United States may be the psychological effects of fear. Consumers who see their retirement accounts shrink along with stock indexes tend to feel more vulnerable and less likely to spend. It’s the reverse of the so-called wealth effect, which occurs when rising stocks make consumers feel wealthier and more confident.

And any dramatic increase in Ebola cases in the United States could at least temporarily freeze economic activity.

“People would stop travelling,” Moody’s Mr Zandi says. “That would put a pall” over the economy.

For now, the US economy looks durable.

“More people are getting jobs, we’re printing more paychecks, the US economy stumbles on forward,” says Jerry Webman, chief economist at OppenheimerFunds.

AP

US housing starts lift 6.3% in September
DOW JONES NEWSWIRES OCTOBER 18, 2014 12:30AM

US home building rebounded in September, suggesting steady job creation and falling interest rates could aid construction late this year.

Housing starts rose 6.3 per cent in September from a month earlier to a seasonally adjusted annual rate of 1.017 million units, the Commerce Department said Friday. Building permits, a bellwether of future construction, increased 1.5 per cent last month to a 1.018 million rate.

Economists surveyed by The Wall Street Journal had forecast housing starts to rise 4.6 per cent last month and building permits to increase 2.3 per cent.

August starts were revised up slightly to a 957,000 annual rate, representing a decrease of 12.8 per cent from July. The initial estimate was a 14.4 per cent drop.

Housing starts have been extremely volatile much of the year. A strong April was followed by falling starts in May and June, before surging 21 per cent in July to a post-recession high of a 1.1 million annual rate. Construction has slowly rebounded from the depths of the housing crisis, but the pace of starts remains well off from the annual average of 1.7 million from 1996 to 2006.

Newly started single-family units, roughly two-thirds of the market, rose just 1.1 per cent in September. Permits for the category declined 0.5 per cent. It's largely been a disappointing year for single-family construction, with starts up just 3.8 per cent through the first nine months of the year, compared to the same period in 2013.

Heading into 2014, there was hope that better job creation and still historically low interest rates would generate demand for new homes.

But a cold winter stalled construction and buyers gravitated toward a growing inventory of existing homes, which tend to cost less. Sales of previously owned properties had increased for four straight months through July before falling slightly in August, according to the National Association of Realtors.

Confidence among builders slipped in October as they grew more concerned about current sales conditions, the National Association of Home Builders said Thursday. More broadly, volatile financial markets and global concerns about the Ebola virus and Middle East turmoil are weighing on consumers' confidence.

Still there some factors supporting a stronger finish to the year for home building.

The labour market has added more than 200,000 jobs on average each month this year and the unemployment rate fell to 5.9 per cent in September, the lowest reading since 2008.

Lower interest rates on mortgages could also boost demand for homes late in the year. The average interest rate on a 30-year mortgage fell to 3.97 per cent this week, according to Freddie Mac. It's the first time rates have fallen below 4 per cent in more than a year.

But credit to buy a home is still difficult to attain for some consumers. "Mortgage credit really is, at this point, available really to those with pristine credit," Federal Reserve Chairwoman Janet Yellen said last month.

Many of those would-be buyers are renting instead. While bumpy month-to-month, construction of multi-unit dwellings has grown much more strongly than the single-family market this year. Starts of properties with five or more units, mainly apartment buildings, have increased 22.7 per cent so far this year, compared to the first nine month of 2013.

US consumer confidence grows further
DOW JONES NEWSWIRES OCTOBER 18, 2014 1:30AM

US consumers feel more confident about the economy in early October, according to a survey of households released Friday. Optimism about the future fuelled the gain.

The Thomson-Reuters/University of Michigan preliminary October sentiment index unexpectedly increased to 86.4 from the final September reading of 84.6, according to a source who has seen the numbers.

The early October reading is above the 84.0 reading forecasted by economists surveyed by The Wall Street Journal.

This month's preliminary current conditions index was unchanged from 98.9 at the end of September. The expectations index increased to 78.4 from 75.4.

Consumers' collective view of the economy has been edging higher since the spring. In early October, falling gasoline prices and better labor statistics likely are offsetting more downbeat events, including the steep drop in stock prices, fears over the spread of Ebola and global economic-slowdown news.

Even so, consumers are still not spending freely. The Commerce Department reported Wednesday that September retail sales fell 0.3 per cent and were down 0.2 per cent when vehicle buying is excluded.

With gasoline prices down, inflation expectations remain well anchored.

According to the Michigan survey, the early October one-year inflation expectations fell to 2.8 per cent from the final September reading of 3.0 per cent. Inflation expectations covering the next five to 10 years remained at 2.8 per cent.

US Federal Reserve's Fisher: Could see full employment, 2% inflation by 201521 Oct12:15 AM
[SAN FRANCISCO] The US economy could be fully recovered from the effects of the financial crisis and recession as early as next year, a top Federal Reserve official said, flagging the possibility the US central bank will need to raise interest rates sometime soon.

"There are good reasons to believe that we'll achieve our full-employment and price-stability objectives fairly soon, perhaps as early as next year," Dallas Federal Reserve Bank President Richard Fisher wrote in an Economic Letter released Monday. "Do we keep the accelerator pedal to the floor right up to the point where we reach our destination? Or do we ease up as we near our goal?" Fisher, who co-wrote the Letter with his policy advisor Eric Koenig, did not answer those rhetorical questions directly.

But they warned against being too patient on interest rates and allowing the economy to blow past the Fed's twin employment and inflation goals.

Inflation, now running at about 1.6 to 1.7 percent, is expected to reach 2 percent by this time next year, they wrote, citing economists' forecasts. Unemployment is now at 5.9 percent, and Fed officials generally see full employment as somewhere between 5.2 and 5.5 percent.

Historically, they wrote, the Fed has never been able to ease the economy smoothly back to full employment after having overshot that goal. "We're not 'there' yet, but we're getting close," they wrote. "When the economy goes into reverse, it has a pronounced tendency to lurch backward all the way into recession."

- REUTERS

Value Investors Hoarding Cash See Few Bargains After Rout
By Charles Stein Oct 20, 2014 12:00 PM GMT+0800
Value Investors Hoarding Cash



Eric Cinnamond had 75 percent of the money in his mutual fund in cash at the end of July because he couldn’t find enough cheap small-company stocks to buy. The stock-market selloff this month hasn’t changed his mind.

“While the recent decline is refreshing, in my opinion, small caps remain expensive given the insane heights they reached this cycle,” Cinnamond, manager of the $691 million Aston/River Road Independent Value Fund, (ARIVX) wrote in an e-mail.

A global rout in stock markets has wiped $3.3 trillion from the value of equities worldwide this month through Oct. 16 and the Standard & Poor’s 500 Index has slumped 6.2 percent since reaching a peak for the year on Sept. 18. The plunge hasn’t been enough for Cinnamond and other money managers who hold unusually high levels of cash, such as Stephen Yacktman of Yacktman Asset Management LP and Wally Weitz of Weitz Investment Management Inc., who say bargains still aren’t easy to find.

“It’s not as if the world is all of a sudden dirt cheap,” Keith Trauner, co-manager of the $509 million GoodHaven Fund, said in a telephone interview from Miami. “It’s becoming more reasonable,” said Trauner, whose fund had 28 percent of its assets in cash as of May 31.


The caution of the stock pickers isn’t matched by debt investors. Firms from Pacific Investment Management Co. to Blackstone Group LP (BX) say they are poised to scoop up speculative-grade corporate bonds after yields rose to the highest level in more than a year. They’re looking for bargains after building up the biggest hoard of cash in almost three years.

Stocks Plunge

Stocks worldwide have plunged in October amid concern that economic growth in Europe and China is slowing and the U.S. winds down asset purchases. The slump also reflects fears about the effect of the spread of Ebola and a decline in energy stocks after oil prices reached bear-market territory.

The S&P 500’s decline has pared its gain for the year to 2.1 percent as of Oct. 17. The Russell 2000 Index, a benchmark for smaller stocks, is down 6.8 percent for the year and 10 percent below its 2014 peak reached in March. Energy is the worst performing industry in the S&P 500 in October, declining 8.2 percent this month, according to data compiled by Bloomberg.

Value-minded investors such as Cinnamond and Yacktman, who look for stocks that are cheap compared with a company’s earnings prospects, will build up cash when they can’t find enough securities that meet their standards. The average U.S. equity fund holds about 3.5 percent its assets in cash, data from Chicago-based Morningstar Inc. show.

Buffett, Klarman

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) held more than $50 billion in cash at the end of June, the first time it finished a quarter above that level since he became chairman and chief executive officer more than four decades ago.

Buffett has said he is waiting for a “fat pitch,” his phrase for an opportunity to buy a stock at a favorable price. He said this month in Fortune’s Most Powerful Women Summit that most of the time, stocks tend to trade in what he calls “the zone of reasonableness” and that he’ll get a chance every five to ten years to make a definitive statement.

“There is a big zone of reasonableness and anybody who thinks they can pinpoint it is crazy,” Buffett said during the conference.

Seth Klarman, founder of Boston-based Baupost Group LLC, had almost 40 percent of his hedge fund in cash at the beginning of the year, according to his 2013 year-end letter to shareholders. Klarman is a bargain hunter who wrote the preface to the sixth edition of “Security Analysis,” a landmark 1934 book by Benjamin Graham on value investing.

‘Lost Capital’

“We prefer the risk of lost opportunity to that of lost capital,” Klarman wrote in a letter to clients a decade ago.

Buffett didn’t respond to a message left with an assistant seeking comment on Berkshire’s cash hoard. Klarman declined to comment on his view of the market.

Cinnamond has a history of piling up cash. At his last job, as manager of the Intrepid Small Cap Fund he boosted cash in 2007, saying that small-cap names were expensive. The decision helped Cinnamond beat 96 percent of peers in 2007 and 99 percent in 2008 as small stocks tumbled. Cinnamond ran the Intrepid fund until 2010.

“I was fully invested in March 2009,” he said in a telephone interview from Ponte Vedra, Florida, referring to the low point for the stock market.

At the Aston fund, his cash levels have climbed sharply, which caused him to trail more than 99 percent of rivals last year, according to data compiled by Bloomberg. This year, he is beating 92 percent. Cinnamond said small stocks would need to fall an additional 30 percent to 50 percent to bring their valuations down to normal historical levels.

“These stocks are nowhere near the price they need to be for us to be aggressive buyers,” he said.

‘Asinine’ Valuations

Jayme Wiggins, who succeeded Cinnamond on the $650 million Intrepid Small Cap Fund in 2010, shares his predecessor’s concerns. Wiggins, who had 74 percent of his fund in cash as of Sept. 30, has been able to put a little of that money to work recently in energy stocks, which he said, “have felt more pain.”

“Small-cap valuations are still quite asinine,” he wrote in an e-mail.

The Russell 2000 Energy Index is down 24 percent for the year, according to data compiled by Bloomberg. Oil has slipped into a bear market as shale supplies boost U.S. output to the highest level in almost 30 years amid signs of weakening global demand.

‘Wish List’

Matt Lamphier, a manager at the $3 billion First Eagle U.S. Value Fund, (FEFAX) has also found some bargains in energy of late. He can’t find them elsewhere in the market, he said in a telephone interview from New York. The fund, which has about 18 percent of its assets in cash, hasn’t been an aggressive buyer of stocks since 2011, the last time the broader market fell significantly, said Lamphier.

“We have a wish list of stocks, but we need to see prices a bit lower than they are before we would buy,” he said.

Weitz, who manages more than $5 billion in mutual funds and separate accounts, has pared cash levels in his funds by 5 to 10 percentage points since they peaked at about 30 percent in the third quarter, he said.

Weitz, whose $1.1 billion Weitz Partners III Opportunity Fund beat 97 percent of peers over the past five years, said he has found a few new companies to buy in the past few days.

“But it’s nothing like 2008 and 2009 where bargains were screaming at us,” he said in a telephone interview from Omaha, Nebraska.

Fruit Picker

Yacktman, chief investment officer at Austin, Texas-based Yacktman Asset Management, has been telling investors for the past few quarters that stocks in general were expensive. In one conference call, he likened the plight of a stock picker in today’s market to that of a fruit picker, high up on a ladder. In both cases, there is not much to pick and the job has become more dangerous. The $10.6 billion AMG Yacktman Focused Fund (YAFFX), held 16 percent of its assets in cash as of Sept. 30, according to the fund’s website.

“We are glad to see it,” he said of the recent market selloff, in a telephone interview. “It brings us back into the game.”

At the Goodhaven Fund, Trauner said the best time to buy stocks is when markets are depressed.

“Although we wish ill will on nobody, the best opportunities usually show up after some segment of investors has suffered -- and we are working hard to make sure that we’re not the ones in great pain,” he and his co-manager Larry Pitkowsky told shareholders in their semi-annual report.

US existing-home sales rebound
AFP OCTOBER 22, 2014 2:15AM

US existing-home sales rebounded in September from a dip in August to their highest pace of the year, the National Association of Realtors says.

Sales of used single-family homes increased 2.4 per cent to an annual rate of 5.17 million units in September, up from 5.05 million the prior month, the NAR said.

Though September sales were at the peak rate yet of 2014, compared with a year ago they were down 1.7 per cent.

"Low interest rates and price gains holding steady led to September's healthy increase, even with investor activity remaining on par with last month's marked decline," Lawrence Yun, NAR chief economist, said in a statement.

Sales of single-family homes rose 2.0 per cent, while condominium and co-op sales leaped 5.2 per cent.

The median sales price for all types of existing homes was $US209,700, up 5.6 per cent from September 2013 and the 31st straight month of year-over-year gains.

Total inventory of homes on the market at the end of September fell 1.3 per cent to 2.30 million, equivalent to a 5.3-month supply at the current sales pace.

Properties for sale were on the market in September longer, typically 56 days, than last month's 53 days and a year ago, 50 days.

"Traditional buyers are entering a less competitive market with fewer investors searching for available homes, but may also face a slight decline in choices due to the fact that inventory generally falls heading into the winter," Mr Yun said.

The average 30-year mortgage interest rate rose slightly, to 4.16 per cent in September from 4.12 per cent in August, but remained well below the 4.49 per cent rate a year ago, NAR said, citing data from mortgage-finance giant Freddie Mac.

Jennifer Lee of BMO Economics said the NAR report showed the US housing market was still improving.

"Overall, this is a positive report and we should continue to see housing receiving support from steady job growth, and reportedly easier credit requirements from Fannie and Freddie, even as higher borrowing costs are on the horizon," she said.

US pending home sales rise modestly
AP OCTOBER 28, 2014 1:45AM

The number of Americans signing contracts to buy homes ticked up slightly in September, as it remained difficult to qualify for mortgage financing.

The National Association of Realtors says its seasonally adjusted pending home sales index rose 0.3 per cent over the past month to 105.

The index remains half a percentage point below its 2013 average, although one per cent higher than a year ago.

Tight credit and price increases through the middle of 2013 have limited buying activity.

About 15 per cent of the real estate agents surveyed for the index say they couldn't close a deal because the buyer was unable to obtain a mortgage.

Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

Investors doubt Fed will start lifting rate in mid-2015

Washington

INVESTORS eyeing recent global economic and political turmoil are expressing doubt about forecasts from Federal Reserve officials - and most Wall Street economists - that the Fed will begin to lift its benchmark rate in mid-2015.

The Federal Open Market Committee (FOMC) is meeting on Tuesday and Wednesday this week after six weeks of volatility in global financial markets. Chair Janet Yellen and her colleagues will focus instead on a robust US outlook and end their bond-buying programme as planned, according to 62 of 64 economists surveyed by Bloomberg News.

By smaller margins, most also expect the FOMC to reiterate rates will stay low for a "considerable time" and that there's a "significant underutilisation of labour resources".

Since the FOMC met in mid-September, oil prices have tumbled 14 per cent, the Standard & Poor's 500 Index of stocks dropped as much as 7.4 per cent from a record close and yields on 10-year Treasury notes touched the lowest since May 2013.

The retrenchment has widened a gulf between Fed officials and a majority of private economists on one side, who see the next tightening by mid-2015, and investors who say rates will stay at record lows for longer.

"The Fed is certainly going to consider the turmoil we have seen in recent weeks," said Dana Saporta, director of US economic research at Credit Suisse Group AG in New York, whose firm expects the quantitative easing programme to end at this meeting. "But ultimately we think they will stay the course and the first tightening will come in the middle of next year."

Fed district bank presidents William Dudley of New York and John Williams of San Francisco earlier this month called such estimates reasonable. Economists in the Oct 22-24 Bloomberg survey agreed, with 52 per cent predicting the FOMC will raise the benchmark interest rate in the second quarter of 2015.

Fed officials' September forecasts showed a median funds rate estimate of 1.375 per cent at the end of next year. One scenario to reach that outcome would be rate rises starting midyear in quarter-point steps over the following several meetings.

Contradicting that view are US money markets, where investors are betting on a later tightening. Futures contracts show an 85 per cent probability that the Fed's policy rate will be no higher than 0.25 per cent in June 2015. Sixty-four per cent see it at 0.5 per cent or higher in December of that year.

Concern over the spread of the Ebola virus, low inflation in developed economies, resurgent violence in the Middle East and stagnating euro-area growth have all caused investors to put more weight on the possibility of a later rate rise next year, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. "Markets have seen a lot of things they don't fully understand over the past three or four weeks," said Mr Crandall, who is forecasting a June rate increase.

A large minority of economists in the survey share that view. Forty-one per cent said the first rate increase would happen in the third quarter or later. Eight per cent said it would occur in the first quarter of 2015.

Despite global challenges, most economists forecast the US economy will expand 3 per cent next year, bringing unemployment down to an average rate of 5.5 per cent in the fourth quarter of 2015, according to a separate Bloomberg News survey from Oct 3 to 8. That's at the top end of Fed officials' estimated range for full employment. The jobless rate was 5.9 per cent in September.

"The baseline outlook looks the same, but the uncertainty around the baseline has increased" and short-term rate markets are pricing accordingly, said Michael Gapen, senior US economist at Barclays Capital Inc and a former member of the Fed board staff. Barclays forecasts a June rate increase "with risks" that it happens in September, Mr Gapen said.

Yield differences between Treasury notes and US government inflation-linked bonds show investors now expect inflation to average 1.5 per cent over the next five years compared with 1.81 per cent on Sept 16.

St Louis Fed president James Bullard said in an interview Oct 16 that it would be a "logical policy response" to delay the end of quantitative easing to boost inflation expectations. Economists in the survey gave an extension of quantitative easing only a 3 per cent probability.

Lower commodity prices due to a weaker global growth outlook are the primary reason expectations for US inflation have moved lower in market measures, according to 71 per cent of economists polled.

Actual inflation, measured by the personal consumption expenditures price index, has remained below the Fed's 2 per cent target for 28 months, with prices rising just 1.5 per cent for the 12 months through August.

Seventy-two per cent of economists in the survey said the price index won't show a third consecutive reading of 2 per cent or higher until the fourth quarter of 2015 or later.

Even so, 53 per cent said the Fed will leave its phrasing on inflation unchanged from September.

At that time, the FOMC said the "likelihood of inflation running persistently below 2 per cent has diminished somewhat since early this year". Thirty-six per cent of economists said the Fed will revert to language used mid-year, that inflation "persistently below" the 2 per cent target "could pose risks to economic performance".

Eighty per cent of economists said the Fed will continue say it will be appropriate to hold the federal funds rate between zero and 0.25 per cent for a "considerable time". Among them is Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. The drop in oil prices will help offset a weaker world economy, he said. BLOOMBERG

It might be an interesting indicator...

Fed awards $219 billion of term deposits

NEW YORK - The Federal Reserve awarded $219.114 billion of seven-day term deposits to banks, a record amount, at a test auction held on Monday, it said in a statement on Tuesday.

The U.S. central bank allotted them to 69 banks which will receive an interest rate of 0.26 percent.

This compared with the $171.86 billion in deposits awarded a week earlier to 66 banks which received an interest rate of 0.26 percent.

The Fed has ramped up testing of its term deposit facility after the 2008 financial crisis to help policymakers drain cash from the banking system when they decide to tighten monetary policy.

On Sept. 4, the Fed said it plans to conduct a series of eight seven-day TDF operations starting in October. These tests will have an early withdrawal feature in which banks can enter into the TDF and pull the money out before the maturity date if they pay a charge.

In the first four operations, there is a $20 billion cap per bank and the interest rate paid on the deposit is set at 0.26 percent. The next four operations, the interest rate paid will rise "in small steps" but it will not go above 0.30 percent. REUTERS
http://www.todayonline.com/business/us-f...m-deposits

http://www.cnbc.com/id/102132961?trknav=...:topnews:2

Fed completes the taper
Jeff Cox | @JeffCoxCNBCcom
6 Hours Ago
CNBC.com


The Federal Reserve ended its historic easing program Wednesday, ceasing the final $15 billion of monthly bond purchases it had made in an effort to keep the economic recovery going, in a statement that kindled market talk about a more hawkish central bank.
Though it ended the program, the Federal Open Market Committee kept the "considerable period of time" language that investors had considered crucial in the central bank's map for when it would raise interest rates. The "considerable" time refers to when the Fed will begin raising rates after the end of the monthly bond buying.

To that end, it said it would keep its short-term target funds rate anchored near zero until it sees more improvement from the economy.

But it also noted significant economic gains, expressed some doubt that low inflation would continue and struck a tone that some anticipated as a tip toward those on the committee who advocated the Fed start to consider tightening policy.

After some meandering stocks ultimately sold off after the statement. Interest rates moved higher as did the U.S. dollar.
"The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored," the statement said, in language that closely reflected pronouncements at previous meetings.
Other parts of the statement were new, though, and generated more talk than usual about when the Fed might change policy course.

Read MoreWhy the market is losing its faith in the Fed
"While the Fed did maintain its promise to keep rates low for a considerable time after this meeting, the rest of the statement sounds positive about the economy and thus reads more hawkishly from a market perspective," Dan Greenhaus, chief strategist at BTIG, said in a note. "While we're a bit surprised the Fed chose to move in a hawkish direction without an accompanying press conference, the fact remains that the U.S. economic expansion is continuing, the labor market is improving and general conditions are better today than they were say one year ago. If that's the case, then why shouldn't the Fed speak more optimistically?

"The Federal Reserve has done a fantastic job of communicating what their plan is," Michael Arone, chief investment strategist for State Street Global Advisors, said in a phone interview. "They are on track to begin policy normalization in the middle of next year, which is what they've talked about. They remain steadfast that they're going to rely on data to do that."

Read More Here's what changed in the latest Fed statement
One area that drew some interest and departed from recent Fed statements was a somewhat more hawkish tone on inflation, which has been held in check by lower energy prices.

"Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year," the statement said.
The FOMC also said there has been "substantial improvement" in the jobs outlook and "underlying strength in the broader economy," which helped provide the impetus to "conclude its asset purchase program this month." The quantitative easing program had swelled the Fed's balance sheet past the $4.5 trillion mark in what the market colloquially calls "money printing."

The statement was approved with only one dissent, from Minneapolis' Narayana Kocherlakota, who advocated keeping QE in place until inflation breached 2 percent.

A U.S. flag flies on top of the Marriner S. Eccles Federal Reserve building in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images
A U.S. flag flies on top of the Marriner S. Eccles Federal Reserve building in Washington, D.C.
In recent months the Fed has equivocated as to what it would take to raise rates. Initially, the FOMC had set 6.5 percent unemployment and 2.5 percent inflation as benchmarks.
But unemployment has slid to 5.9 percent, while inflation, as reflected through the Fed's favorite measure, remains well below 2 percent.

In response, Fed officials have said the decision on rates would be "data dependent," though they haven't been specific about which data and what levels would generate a change in policy.

Read MoreQE3 ends: The best of Finance Twitter

"The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run," the FOMC said in language that, again, mirrored past statements.

When instituting what has become known as QE3, the Fed also said it was an "open-ended" program, meaning that unlike its two predecessors there was no calendar date provided for when it would end.

There was no mention in the statement about what it would take to restart the asset purchase program, but the possibility is likely to stay near in investors' minds.

"Let's say it was suspended rather than ended," Michael Boockvar, chief market analyst at The Lindsey Group, said in a note.


Jeff Cox
Finance Editor