The US Federal Reserve on Wednesday warned of significant risks to the already weak US economy and launched a new plan to lower long-term borrowing costs and bolster the battered housing market.
The US central bank said it would sell US$400 billion of short-term Treasury bonds to buy the same amount of longer-term US government debt, its latest attempt to kickstart growth that slowed to a crawl over the first half of the year.
Apparently spooked by the central bank’s dismal outlook for the economy, US stocks sold off. The Standard & Poor’s 500 index closed down nearly 3 percent.
Prices for long-term government debt rose, pushing yields lower — a sign the measures were more aggressive than some investors had expected. The yield on the benchmark 10-year note dropped as low as 1.856 percent, the lowest in more than 60 years.
“Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated,” the Fed said in a statement after a two-day meeting. “There are significant downside risks to the economic outlook, including strains in global financial markets.”
The Fed also intensified its efforts to shore up the housing market by pledging to reinvest proceeds from maturing housing-related debt it holds back into the mortgage market. Analysts said the Fed’s actions might not have a great impact, even if they did lower long-term interest rates.
“The cost of borrowing simply isn’t the problem,” said Paul Ashworth, an economist at Capital Economics in Toronto. “Businesses don’t have the confidence to invest and half of all mortgage borrowers don’t have the home equity needed to refinance at lower rates.”
The portfolio retooling plan stops short of an outright expansion of the Fed’s holdings — sometimes referred to as quantitative easing — of the type that has drawn harsh criticism domestically and internationally for sowing the seeds of inflation and debasing the dollar.
However, some analysts expect the move will be one in a series of steps the Fed takes to help the economy. The Fed could cut the rate it pays banks for reserves parked at the central bank, which might free up lending, or promise not to raise rates until unemployment drops to a certain level.
Not all policymakers were on board with the Fed’s latest move. The same three officials that had dissented against a decision last month to bolster a low interest rate pledge also opposed Wednesday’s move. Mohamed El-Erian, co-chief investment officer at PIMCO, the world’s biggest bond fund, said the combination of dissents and a gloomier outlook pointed to a growing policy divide.
The Fed had already embarked far down one of the most aggressive monetary easing paths on record. It cut overnight interest rates to near zero in December 2008 and then moved to more than triple its balance sheet through a series of bond purchases.
After its last meeting on Aug. 9, the Fed said it expected to hold rates at rock-bottom levels at least until the middle of 2013, drawing the trio of dissents.
Critics say the monetary easing campaign has failed to produce results and warn it could actually cause damage by fueling inflation and debasing the dollar.
“We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the US economy,” Republican congressional leaders said in a letter to Federal Reserve Chairman Ben Bernanke, which they released on Tuesday.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the