Fed seen raising rates midyear even with low inflation: economy

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Federal Reserve officials will look past low inflation and stay focused on raising interest rates around mid- year as they meet this week, according to a narrow majority of economists surveyed by Bloomberg News. 

PHOTO: AFP

27 Jan8:13 AM

[WASHINGTON] Federal Reserve officials will look past low inflation and stay focused on raising interest rates around mid- year as they meet this week, according to a narrow majority of economists surveyed by Bloomberg News.

Some 45 per cent of 53 economists in the survey said the central bank will raise the benchmark lending rate in June. Six per cent said July, while 30 per cent said the Fed will wait until September for the first increase since 2006. Fed officials last month said they expect to raise the rate this year.

"The economy is increasingly showing signs that it is no longer in crisis mode," said John Ryding, chief economist at RDQ Economics in New York, who is forecasting a June increase. "Low inflation is mainly an oil-price story" and that "will be good for the US economy." The policy-setting Federal Open Market Committee, meeting for the first time in 2015 on Tuesday and Wednesday in Washington, will be challenged by reports contrasting the encouraging performance of the US economy with a global outlook that has darkened since they met in December.

The European Central Bank last week announced it would spend 60 billion euros (US$68 billion) a month starting in March on purchases of debt to ward off the threat of deflation - a damaging, widespread decline of prices - in the euro area.

The euro has weakened almost 3 per cent against the dollar since the ECB's Jan 22 decision, creating a potential headwind for US growth by making its exports more expensive. Economists in the survey said the Fed would shrug off the impact of a stronger dollar.

Some 28 survey participants, or 53 per cent, said the rise in the dollar against major currencies makes no difference to the timing of the first rate increase.

Similarly, 66 per cent said the ECB's decision to start a quantitative-easing program worth at least 1.1 trillion euros makes no difference to the timing of the first Fed rate increase.

Any tweaks in the Fed's communications on the current outlook for the economy and US monetary policy will also be constrained by the lack of a press conference by Fed Chair Janet Yellen after the conclusion of the meeting on Wednesday.

A clear majority of 72 per cent of respondents said they don't expect the phrasing in the policy statement released at the end of the meeting to signal a significant shift toward the risk that inflation is too low.

"I suspect that the Fed is loath at this point to introduce anything that takes away from the thesis of a mid-year rate increase," said Guy Lebas, managing director at Janney Montgomery Scott LLC in Philadelphia.

The US unemployment rate stood at 5.6 per cent in December, close to central bankers' 5.2 per cent to 5.5 per cent estimate for full employment.

Oil prices have fallen about 20 per cent since Fed officials last met Dec 17, and economists are marking up their estimates for growth this year as lower gasoline prices leave households with more money to spend on other things.

A separate survey shows forecasters expect US economic growth of 3.2 per cent this year, according to the median estimate, compared with 2.9 per cent estimated last month.

At the same time, market signals are flashing warnings about the pace of growth and inflation around the world. Yields on US government 10-year notes have fallen to 1.83 per cent from 2.14 per cent since the FOMC last met.

Yields on longer-term government debt are below 1 per cent in France, Germany, Sweden and Japan. A market-based measure of expectations for inflation over the five years starting in 2020 has declined to 1.83 per cent from 1.92 per cent when Fed officials last met.

US central bankers in December forecast an expansion of 2.6 per cent to 3 per cent this year with inflation rising just 1 per cent to 1.6 per cent as measured by the personal consumption expenditures price index.

Yellen said at her press conference following the December meeting that central bankers would have to be "reasonably confident" that inflation would move back to their 2 per cent target over time to begin raising interest rates. She also said there would be no move for at least the next couple of meetings, or not before late-April.

Some 66 per cent, or 35 of 53 economists in the survey, said they didn't expect the Fed's preferred measure of inflation, the personal consumption expenditures price index, to show three consecutive readings of 2 per cent or higher until the second quarter of 2016 or later.

The price index rose 1.2 per cent in December from a year earlier and has been under the Fed's 2 per cent target for 31 straight months.

Eventually, Fed officials will have to acknowledge that inflation is too low and will that as a reason to delay liftoff, said Robert Brusca, president of Fact & Opinion Economics in New York, among the 29 per cent of economists who held that view.

"Yellen is going to do hopscotch from one indicator to another as she starts to emphasize inflation," said Brusca.

"There are demographic factors and there are technology factors and there are international competitiveness factors that are responsible for wages being as weak as they are," Brusca added. "You aren't going to change the demographics and you aren't going to change the technology and the international factors are still in place." Economists were split on the pace of tightening.

Some 34 per cent said the benchmark lending rate would be between 0.75 per cent and 1 per cent at the end of 2015, while 32 per cent said it would be between 0.5 and 0.75 per cent.

BLOOMBERG

      

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MORE

• Fed's solo act gets tougher with ECB, others in stimulus mode
• Lagarde sees Fed starting rate increases in mid-year
• Global woes pose main threat to US economy: Federal Reserve official
• UBS warns of higher volatility in markets this year
• US economy continues broad expansion: Fed report
• Federal Reserve's Kocherlakota: little chance global weakness will slow US

      

The 10 things victorious Syriza party wants for Greece

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PUBLISHED ON JAN 26, 2015 10:51 AM

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Syriza leader Alexis Tsipras greets supporters following victory in the election in Athens on Jan 25, 2015. Radical left party Syriza swept to power in Greece on Sunday promising to end years of painful austerity policies, in an election victory that puts the country on a collision course with the European Union and international creditors. -- PHOTO: AFP

BY ANN WILLIAMS

Radical left party Syriza swept to power in Greece on Sunday promising to end years of painful austerity policies, in an election victory that puts the country on a collision course with the European Union and international creditors.

Syriza will become the first anti-austerity party to take power in Europe and its 40-year-old leader Alexis Tsipras will be Greece's youngest prime minister in 150 years.

Here are 10 things Syriza has said it wants for a new Greece:

1. To renegotiate Greece's massive bailout plan

Syriza wants to negotiate a writedown on Greece's debt with the troika of international creditors, amounting to a whopping 250 billion euros (S$376 billion), and demand a grace period before repayments start to free up funds to boost growth.

Tsipras says Greece's creditors have put the country in an "unsustainable" position, forcing it to make ever greater debt repayments while its economy shrivels. Greece's creditors warns that failure to repay its debts will carry "consequences". Analysts say the eurozone is set for fresh turbulence.

2. To end austerity and start pro-growth economic policies

Tsipras, in his victory address om Sunday, declared the austerity era to be over. Syriza says it will stop the pursuit of "unrealistic" primary budget surpluses while pursuing balanced budgets. It would insist that public investment be excluded from European Union deficit calculations and broker an EU-wide programme of public investment.

It would also negotiate with the troika to agree mechanisms to boost growth to benefit all citizens, including the poor.

3. Protection for banks

The new government will protect the banking system within the framework of the European Central Bank and guarantee Greek citizens' deposits

4. Aid for the poor

Straight away, Syriza would introduce an aid programme for the poor and low-income pensioners, including free power, food vouchers, medical care, travel privileges, a tax break on heating oil

5. Help for smaller companies and farmers

Small and medium-sized enterprises would get support and the government would increase revenue by granting special arrangements for companies to pay arrears.

The government will establish a state-owned development bank and specific government lenders to finance smaller companies and farmers.

6. Help for homeowners

By the end of 2015, Syriza would abolish property tax and stop banks foreclosing on primary residences or auctioning off homes

7. Tax relief for the lower-income

Syriza would change the tax system to make it "fair" with the first 12,000 euros ($14,000) a year of income exempt from levies

8. Minimum wage and more jobs

It would raise the minimum wage to 751 euros a month from 580 euros a month for all workers, restore collective labor agreements, regulate against mass dismissals and create 300,000 jobs in private, public and "social" sectors

9. Slashing government bureaucracy

Syriza would cut the number of ministries to 10 from 18

10. A stop to all sales of state assets

Sources: Bloomberg, AFP

- See more at: http://www.straitstimes.com/news/business/economy/story/the-10-things-victorious-syriza-party-wants-greece-20150126#sthash.PTiY7vSc.dpuf

Freedom, Where Are You? Not in America or Europe — PCR

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January 25, 2015

Freedom, Where Are You?
Not in America or Europe

Paul Craig Roberts

When the former Goldman Sachs executive who runs the European Central Bank (ECB) announced that he was going to print 720 billion euros annually with which to purchase bad debts from the politically connected big banks, the euro sank and the stock market and Swiss franc shot up. As in the US, quantitative easing (QE) serves to enrich the already rich. It has no other purpose.

The well-heeled financial institutions that bought up the troubled sovereign debt of Greece, Italy, Portugal, and Spain at low prices will now sell the bonds to the ECB for high prices. And despite depression level unemployment in most of Europe and austerity imposed on citizens, the stock market rose in anticipation that much of the 60 billion new euros that will be created each month will find its way into equity prices. Liquidity fuels the stock market.

Where else can the money to go? Some will go into Swiss francs and some into gold while gold is still available, but for the most part the ECB is running the printing press in order to boost the wealth of the stock-owning One Percent. The Federal Reserve and the ECB have taken the West back to the days when a handful of aristocrats owned everything.

The stock markets are bubbles blown by central bank money creation. On the basis of traditional reasoning there is no sound reason to be in equities, and sound investors have avoided them.

But there is no return anywhere else, and as the central banks are run by the rich for the rich, sound reasoning has proved to be a mistake for the past six years. This shows that corruption can prevail for an indeterminable period over fundamentals.

As I demonstrated in my book, The Failure of Laissez Faire Capitalism, first Goldman Sachs deceived lenders into over-lending to the Greek government. Then Goldman Sachs former executives took over Greece’s financial affairs and forced austerity upon the population in order to prevent losses to the foreign lenders.

This established a new principle in Europe, one that the IMF has relentlessly applied to Latin American and Third World debtors. The principle is that when foreign lenders make mistakes and over-lend to foreign governments, loading them up with debt, the bankers’ mistakes are rectified by robbing the poor populations. Pensions, social services, and public employment are cut, valuable resources are sold off to foreigners for pennies on the dollar, and the government is forced to support US foreign policy. John Perkins’ Confessions of an Economic Hit Man describes the process perfectly. If you haven’t read Perkins book, you have little idea how corrupt and vicious the United States is. Indeed, Perkins shows that over-lending is intentional in order to set up the country for looting.

This is what Goldman Sachs did to Greece, intentionally or unintentionally.

It took the Greeks a long time to realize it. Apparently, 36.5 percent of the population was awoken by rising poverty, unemployment, and suicide rates. That figure, a little over one-third of the vote, was enough to put Syriza in power in the just concluded Greek election, throwing out the corrupt New Democracy party that has consistently sold out the Greek people to the foreign banks. Nevertheless, 27.7 percent of the Greeks, if the vote reporting is correct, voted for the party that has sacrificed the Greek people to the banksters. Even in Greece, a country accustomed to outpourings of people into the streets, a significant percentage of the population is sufficiently brainwashed to vote against their own interests.

Can Syriza do anything? It remains to be seen, but probably not. If the political party had received 55% or 65% or 75% of the vote, yes. But the largest vote at 36.5% does not show a unified country aware of its plight and its looting at the hands of rich banksters. The vote shows that a significant percentage of the Greek population supports foreign looting of Greece.

Moreover, Syriza is up against the heavies: the German and Netherlands banks who hold Greece’s loans and the governments that back the banks, the European Union which is using the sovereign debt crisis to destroy the sovereignty of the individual countries that comprise the European Union, Washington which backs EU sovereign power over the individual countries as it is easier to control one government than a couple of dozen.

Already the Western financial presstitutes are warning Syriza not to endanger its membership in the common currency by diverting from the austerity model imposed from abroad on Greek citizens with the complicity of New Democracy.

Apparently, there is a lack of formal means of exiting the EU and the euro, but nevertheless Greece can be threatened with being thrown out. Greece should welcome being thrown out.

Exiting the EU and the euro is the best thing that can happen to Greece. A country without its own currency is not a sovereign country. It is a vassal state of another power. A country without its own currency cannot finance its own needs. Although the UK is a member of the EU, the UK kept its own currency and is not subject to control by the ECB. A country without its own money is powerless. It is a non-entity.

If the US did not have its own dollar, the US would be of no consequence whatsoever on the world scene.

The EU and the euro were deception and trickery. Countries lost their sovereignty. So much for Western “self-rule,” “freedom,” “democracy,” all slogans without content. In the entire West there is nothing but the looting of people by the One Percent who control the governments.

In America, the looting does not rely on indebtedness, because the US dollar is the reserve currency and the US can print all the money needed in order to pay its bills and redeem its debt. In America the looting of labor has been through jobs offshoring.

American corporations discovered, and if they did not they were informed by Wall Street to move offshore or be taken over, that they could raise profits by moving their manufacturing operations abroad. The lower labor cost resulted in higher profits, higher share prices, huge managerial bonuses based on “performance,” and shareholder capital gains. Offshoring greatly increased the inequality in income and wealth in the US. Capital succeeded in looting labor.

The displaced well-paid manufacturing workers, if they were able to find replacement jobs, worked part-time minimum wage jobs at Walmart and Home Depot.

Economists, if they are entitled to the designation, such as Michael Porter and Matthew Slaughter, promised Americans that the fictional “New Economy” would produce better, higher-paying, and cleaner jobs for Americans than the “dirty fingernail” jobs that we were fortunate our corporations were moving offshore.

Years later, as I have proven conclusively, there is no sign of these “New Economy” jobs. What we have instead is a sharp decline in the labor force participation rate as the unemployed cannot find jobs. The replacement jobs for the manufacturing jobs are mainly part-time domestic service jobs.
People have to hold 2 or 3 of these jobs to make ends meet. These part time jobs offer no medical or pension benefits.

Now that this fact, once controversial believe it or not, has proven completely true, the same bought-and-paid-for spokespersons for robbing labor and destroying unions claim, without a shred of evidence, that the offshored jobs are coming home.

According to these propagandists, we now have what is called “reshoring.” A “reshoring” propagandist claims that the growth of “reshoring” over the past four years is 1,775 percent, an 18 times increase. http://www.manufacturingnews.com/news/2015/A.T.Kearny-No-Data-Supporting-Reshoring-0112151.html

There is no sign whatsoever of these alleged “reshoring” jobs in the monthly BLS payroll jobs statistics.

What reshoring is all about is propaganda to counteract the belated realization that “free trade” agreements and job offshoring were not beneficial to the American economy or its work force, but were beneficial only to the super-rich.

Like people throughout history, the American people are being turned into serfs and slaves because the fools believe the lies that are fed to them. They sit in front of Fox News, CNN, and whatever. They read the New York Times. If you want to learn how badly Americans have been served by the so-called media, read Howard Zinn’s A People’s History of the United States and Oliver Stone and Peter Kuznick’s The Untold History of the United States.

The media helps the government, and the private interests that profit from their control of government, control the brainwashed public. We have to invade Afghanistan because a faction there fighting for political control of the country is protecting Osama bin Laden, whom the US accuses without any proof of embarrassing the mighty US with the 9/11 attack. We have to invade Iraq because Saddam has “weapons of mass destruction” that he surely has despite the reports to the contrary by the weapons inspectors. We have to overthrow Gaddafi because of a slate of lies that have best been forgotten. We have to overthrow Assad because he used chemical weapons even though all evidence is to the contrary. Russia is responsible for Ukraine problems, not because the US overthrew the elected democratic government but because Russia accepted a 97.6% vote of Crimeans to rejoin Russia where the province had resided for hundreds of years before a Ukrainian Soviet leader, Khrushchev, stuck Crimea into Ukraine, at the time a part of the Soviet Union along with Russia.

War, War, War, that is all Washington wants. It enriches the military/security complex, the largest component of the US GNP and the largest contributor, along with Wall Street and the Israel Lobby, to US political campaigns.

Anyone or any organization that offers truth to the lies is demonized. Last week the new chief of the US Broadcasting Board of Governors, Andrew Lack, listed the Russian TV Internet service Russia Today as the equivalent of Boko Haram and the Islamic State terrorist groups. This absurd accusation is a prelude to closing down RT in the US just as Washington’s puppet UK government closed down Iran’s Press TV. http://rt.com/usa/225819-rt-isis-point-view-competition/

In other words, Anglo-Americans are not permitted any different news than what is served to them by “their” governments.

That is the state of “freedom” in the West today.

Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. Roberts' latest books areThe Failure of Laissez Faire Capitalism and Economic Dissolution of the West and How America Was Lost.