Fed's Evans, citing low inflation, wants no rate hikes until 2016

4 Mar10:32 PM

[LAKE FOREST] The Federal Reserve should wait until the first half of 2016 before raising interest rates, a top U.S. central banker said on Wednesday, or risk undermining the very recovery it has helped engineer.

"Given uncomfortably low inflation and an uncertain global environment, there are few benefits and significant risks to increasing interest rates prematurely," Chicago Federal Reserve Bank President Charles Evans said in remarks prepared for delivery to the Lake Forest-Lake Bluff Rotary Club.

"I think we should be patient in raising interest rates."

Even if the Fed keeps rates at their near-zero level until next year, he said, inflation probably won't reach the Fed's 2-per cent goal until the end of 2018. And if his forecast proves wrong and the economy begins to run too hot too fast, he said, the Fed would have "ample time" to raise rates moderately to head off excessively high inflation.

Mr Evans, a voting member this year on the Fed's policy-setting panel, stands nearly alone at the central bank in calling for rates to stay near zero for another year or so. Many of his colleagues have said they are open to, if not eager for, rate hikes to begin as soon as June.

For his part, Mr Evans expects the US economy to grow at a 3-per cent pace over the next couple of years, generating job gains of over 200,000 a month for some time.

But that is not enough to justify raising rates, he said. Unemployment, at 5.7 per cent, is still above the 5 per cent he now believes is sustainable for the economy in the longer run.

More importantly, the Fed's core gauge of inflation is at just 1.3 per cent, and inflation expectations based on prices in Treasury markets have fallen dramatically.

Before raising rates, he said, he would like to see not only a rise in core inflation and in market-based inflation expectations, but also a rise in wages, now averaging around 2 per cent a year, to between 3 and 4 per cent.

REUTERS

      

Denmark Can't Print Money Fast Enough

MAR 4, 2015 2:00 AM EST

By Mark Gilbert

Denmark is unleashing huge amounts of ammunition in its battle to prevent the krone from appreciating. The cost of the campaign, though, suggests that any renewed assault by speculators could require an even more aggressive response -- capital controls.

Currency Wars

The nation revealed yesterday that its foreign currency reserves soared by 173 billion kroner ($26 billion) in February -- the biggest increase ever. The central bank has been cranking up the printing presses, minting domestic currency for sale on the foreign exchange market to stop the krone from straying too far from its target rate of about 7.46 per euro.

As it offloads kroner, the central bank buys foreign currencies, which go into a reserve account that held a record 737 billion kroner last week. Those sales, combined with four rate cuts this year -- driving the benchmark deposit rate to minus 0.75 percent -- are deterring traders from betting they can make money pushing the currency higher:

The initial pressure on Denmark's currency came after Switzerland abandoned its currency peg in January, and as the European Central Bank's plan to unveil a government bond-buying program discouraged investors from wanting to own the euro. The Danish government says it's determined not to let its exports take a hit from currency appreciation.

But, as the chart below shows, prices in the derivatives market suggest the war isn't over. Traders who buy and sell contracts to speculate on where the krone will be in a year's time are still anticipating it will strengthen. The current bet is for a 0.8 percent variation from the target rate, which is still within the official 2.25 percent range the central bank says it will tolerate, but outside the 0.5 percent band it has typically maintained. Moreover, the red line is moving in the wrong direction:

Jens Nordvig, the New York-based head of currency research at Japanese bank Nomura, says that although Denmark's foreign exchange efforts are more credible than Switzerland's were, it may find itself under renewed attack:

The battle may not be over. The inflows may reappear, especially if the euro is on a global weakening trend. To cement the credibility of the Danish peg arrangement, the authorities may seek to explore extreme options, at least as a temporary measure.

In theory, Denmark's membership in the European Union prohibits it from restricting the free movement of capital among member states. Also in theory, that would outlaw any move to lock money in the country, or to unilaterally tax currency trading. In practice, however, EU rules are a moveable feast. With the euro already the third-worst performer against the dollar this year, out of the world's 16 most-traded currencies, Denmark may need more than rate cuts and krone sales to defend itself.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Paula Dwyer at pdwyer11@bloomberg.net

China urges banks to speed up agriculture sector loans

China urged its banks to speed up lending to agriculture, the country's banking regulator said on Tuesday, in an effort to bolster a sector that employs almost one third of its 1.4 billion people, but remains in desperate need of funding. 

PHOTO: REUTERS

3 Mar8:26 PM

[BEIJING] China urged its banks to speed up lending to agriculture, the country's banking regulator said on Tuesday, in an effort to bolster a sector that employs almost one third of its 1.4 billion people, but remains in desperate need of funding.

Policymakers have cut interest rates, increased lending targets and freed up banks' reserves to lend more, but this has done little for farming, which produces some 9 per cent of China's GDP, though with low productivity.

Inefficient and obsolete farming techniques have been blamed for causing major soil and water pollution and food scandals, and economists say the sector needs investment from banks that have so far been reluctant to lend, despite repeated demands from Beijing.

Banks should "persist in improving rural finance services and forcefully support agriculture modernisation," a statement posted on the website of the China Banking Regulatory Commission (CBRC) said.

Financial institutions should also "strive to achieve rural lending speeds that exceed the average level of all loans," the regulator said, adding that water conservation and rural road construction would be a priority.

China's "number one" planning document, issued by state media in February, listed modernising farms as a key priority for 2015, including plans to encourage private investment and cheaper financing.

China has been struggling to squeeze as much food out of its declining land area as possible as demand increases from ever-expanding urban regions.

REUTERS

      

JPMorgan to pay US$50m over improper mortgage practices: DOJ

3 Mar11:53 PM

[WASHINGTON] JPMorgan Chase will pay US$50 million as part of a national settlement agreement to compensate homeowners in bankruptcy over the use of robo-signing and other improper practices, the Department of Justice said on Tuesday.

The settlement includes cash payments, mortgage loan credits and loan forgiveness to more than 25,000 homeowners, the Justice Department said in a statement.

REUTERS

      

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Barclays fails to win dismissal of NY 'dark pool' lawsuit

A New York judge on Friday rejected Barclays's effort to dismiss state Attorney General Eric Schneiderman's lawsuit accusing it of defrauding clients about high-speed trading in its private "dark pool" trading platform.

PHOTO: REUTERS

14 Feb7:22 AM

[NEW YORK] A New York judge on Friday rejected Barclays's effort to dismiss state Attorney General Eric Schneiderman's lawsuit accusing it of defrauding clients about high-speed trading in its private "dark pool" trading platform.

Justice Shirley Werner Kornreich of the State Supreme Court in Manhattan said it was premature to dismiss Mr Schneiderman's claim under the state's Martin Act, a powerful anti-fraud law.

"Traders are entitled to rely on material representations banks make about their dark pools," the judge wrote. "If such representations are untrue, the integrity of dark pools will be compromised and investor confidence in them will be shaken."

But the judge said Mr Schneiderman still must show enough specifics about Barclays' dark pool to demonstrate the bank lied to clients and investors.

Quoting from Mr Schneiderman's complaint, Ms Kornreich also said she would not transform the case into a battle over the legality of high-speed trading. "Investors in the dark pool are highly sophisticated and, hence, no liability will be found simply on the basis of meaningless words, such as 'aggressive', 'predatory', and'toxic'," she wrote. "This court is not influenced, nor is it moved, by the NYAG's public policy arguments." Ms Kornreich said she will rule later on whether Mr Schneiderman raised a valid Martin Act claim, and that Barclays' arguments that the law should not apply were "not entirely unreasonable." The judge also dismissed a claim that Mr Schneiderman brought under a separate state law.

Barclays had no immediate comment.

Liz DeBold, a spokeswoman for Mr Schneiderman, said: "We are pleased the court affirmed our ability to pursue a claim against Barclays." Dark pools were designed to let people quietly trade shares before investors in the broader market could learn about and bet against their trades.

But in his lawsuit, Mr Schneiderman said Barclays falsely told clients from 2012 to 2014 that its algorithms gave no advantage to particular trading venues or client orders, despite having reprogrammed those algorithms to favor its dark pool.

He also said Barclays falsely downplayed the percentage of dark pool trading that was "aggressive," and that electronic trading chief William White and head of product development David Johnsen directly oversaw this activity.

Mr Schneiderman's lawsuit is among the highest-profile cases as regulators probe high-speed trading, which came under scrutiny in Michael Lewis' bestseller "Flash Boys: A Wall Street Revolt."

REUTERS