US Federal Reserve Chairman Ben Bernanke's plan to increase transparency may have little short-term sway over investors who see financial carnage that will force the Fed to cut interest rates further.
Bernanke was to give a speech yesterday in which Fed watchers expected him to outline the results of a one-and-a-half year review of communications strategy. Officials have considered increasing their economic forecasts to four times a year, from two, and extending their horizon for projections to three years, said a person familiar with the matter.
Traders are betting the Fed is underestimating the fallout from the housing slump and bank writedowns of assets pummeled by subprime mortgage defaults. Investors ignored Bernanke when he said last week the risks between economic growth and inflation are "roughly" balanced, anticipating rate reductions at the next two Fed meetings.
"The market is unlikely to change its views on the basis on whatever the Fed might put out or what commentary they might have," said Charles Lieberman, a former New York Fed economist who's now chief investment officer of Advisors Capital Management LLC in Paramus, New Jersey. "The market's going to have to see some better data in order to basically join the Fed."
Bernanke was scheduled to speak on "Federal Open Market Committee Communications" at the Cato Institute in Washington yesterday morning, a research group holding an annual monetary-policy conference.
Bernanke, 53, set up a subcommittee headed by Vice Chairman Donald Kohn last year to review how the Fed communicates policy objectives. While officials said the discussions included setting a target for the inflation rate, the changes Bernanke is likely to announce will fall short of that objective, analysts said. The Fed chief favored a target when he served as Fed governor.
FORECASTS
The Fed currently releases forecasts for economic growth, unemployment and inflation in the coming two years in February and July. Moving to four annual reports suggests the central bank may release updated predictions before Bernanke's semiannual testimony to Congress in February.
New forecasts would offer Fed officials a chance to reinforce their message that growth will accelerate by the middle of next year. Bernanke told lawmakers at a Nov. 8 hearing the Fed already anticipates growth will "slow noticeably" this quarter.
Investors are betting policy makers will have to add to their 0.75 percentage point of cuts in the benchmark interest rate to avoid a recession.
Futures contracts on the Chicago Board of Trade indicate an 82 percent chance the FOMC will cut the overnight lending rate between banks by a quarter point to 4.25 percent on Dec. 11. A fourth reduction at the Jan. 29 to. Jan. 30 meeting, to 4 percent, carries a 53 percent probability.
"The long-run forecasts don't really tell you about near-term policy," said Peter Kretzmer, senior economist at Bank of America Corp in New York, who used to work at the Fed.
INFLATION
While the Fed may stop short of introducing an inflation target, it could offer insight into the desired range by adding forecasts for price changes in three years' time. That's because, as Bernanke said last week, "in all but the shortest of terms, the Federal Reserve's policy determines how much inflation there is."
Moving to a full-fledged numerical goal may have proved unpalatable to Democrats, who have a majority in Congress. House Financial Services Committee Chairman Barney Frank of Massachusetts and other legislators have opposed a target, arguing it would diminish the Fed's so-called dual mandate. The central bank is also charged with attaining full employment.
The Fed can get around that by "having the inflation forecast go out far enough so the endpoint is the implicit target," said Ethan Harris, chief US economist at Lehman Brothers Holdings Inc in New York, who used to work at the New York Fed.
"We've already seen the downside of not having the regime in place," Harris said. "There's all this silly speculation that Bernanke isn't serious about inflation."
A falling dollar and rising energy and commodity prices could push up consumer prices, Fed officials have acknowledged. Inflation expectations, as measured by the difference in yields between 10-year Treasuries and notes indexed to inflation, have risen. The spread reached 2.44 percentage points on Nov. 6, the widest since June.
MORE VISITORS: The Tourism Administration said that it is seeing positive prospects in its efforts to expand the tourism market in North America and Europe Taiwan has been ranked as the cheapest place in the world to travel to this year, based on a list recommended by NerdWallet. The San Francisco-based personal finance company said that Taiwan topped the list of 16 nations it chose for budget travelers because US tourists do not need visas and travelers can easily have a good meal for less than US$10. A bus ride in Taipei costs just under US$0.50, while subway rides start at US$0.60, the firm said, adding that public transportation in Taiwan is easy to navigate. The firm also called Taiwan a “food lover’s paradise,” citing inexpensive breakfast stalls
TRADE: A mandatory declaration of origin for manufactured goods bound for the US is to take effect on May 7 to block China from exploiting Taiwan’s trade channels All products manufactured in Taiwan and exported to the US must include a signed declaration of origin starting on May 7, the Bureau of Foreign Trade announced yesterday. US President Donald Trump on April 2 imposed a 32 percent tariff on imports from Taiwan, but one week later announced a 90-day pause on its implementation. However, a universal 10 percent tariff was immediately applied to most imports from around the world. On April 12, the Trump administration further exempted computers, smartphones and semiconductors from the new tariffs. In response, President William Lai’s (賴清德) administration has introduced a series of countermeasures to support affected
CROSS-STRAIT: The vast majority of Taiwanese support maintaining the ‘status quo,’ while concern is rising about Beijing’s influence operations More than eight out of 10 Taiwanese reject Beijing’s “one country, two systems” framework for cross-strait relations, according to a survey released by the Mainland Affairs Council (MAC) on Thursday. The MAC’s latest quarterly survey found that 84.4 percent of respondents opposed Beijing’s “one country, two systems” formula for handling cross-strait relations — a figure consistent with past polling. Over the past three years, opposition to the framework has remained high, ranging from a low of 83.6 percent in April 2023 to a peak of 89.6 percent in April last year. In the most recent poll, 82.5 percent also rejected China’s
PLUGGING HOLES: The amendments would bring the legislation in line with systems found in other countries such as Japan and the US, Legislator Chen Kuan-ting said Democratic Progressive Party (DPP) Legislator Chen Kuan-ting (陳冠廷) has proposed amending national security legislation amid a spate of espionage cases. Potential gaps in security vetting procedures for personnel with access to sensitive information prompted him to propose the amendments, which would introduce changes to Article 14 of the Classified National Security Information Protection Act (國家機密保護法), Chen said yesterday. The proposal, which aims to enhance interagency vetting procedures and reduce the risk of classified information leaks, would establish a comprehensive security clearance system in Taiwan, he said. The amendment would require character and loyalty checks for civil servants and intelligence personnel prior to
RSS