October 11, 2013
- in Uncategorized by schooloftrade
The Beginning of the End for the Govt Shutdown
After reacting calmly to the fiscal train wreck
underway in Washington, DC last week, financial markets began to display a
certain degree of discomfort through the first half of this week.
underway in Washington, DC last week, financial markets began to display a
certain degree of discomfort through the first half of this week.
On Monday, the US Treasury’s $35B four-week bill sale
went very poorly, with the rate hitting its highest level since March 2008,
triple the rate of the last four-week auction, as traders continue to shy away
from holding short-term US paper.
Both Japan and China (the first- and second-largest
foreign holders of USTs) demanded that Congress ensure the stability of their
very substantial investments, while ratings agencies warned they would
reconsider US sovereign ratings if there were no debt limit solution.
foreign holders of USTs) demanded that Congress ensure the stability of their
very substantial investments, while ratings agencies warned they would
reconsider US sovereign ratings if there were no debt limit solution.
By Friday, the House Republican leadership looked ready
to resolve the crisis and undertake serious negotiations with the White House.
to resolve the crisis and undertake serious negotiations with the White House.
The new Republican offer would set up negotiations on two
tracks: the first to reopen the government and the second to craft a broader
budget deal that would fund the government through 2014 and raise the debt
ceiling. Reports suggested that if the president accepts the framework, the
House could vote Friday on a six-week short-term debt ceiling hike.
tracks: the first to reopen the government and the second to craft a broader
budget deal that would fund the government through 2014 and raise the debt
ceiling. Reports suggested that if the president accepts the framework, the
House could vote Friday on a six-week short-term debt ceiling hike.
Because of the government shutdown there was a dearth of
US economic data, and the data that was reported disappointed expectations. The
weekly jobless claims hit six month highs on more claims processing issues in
California and as government furloughs started to impact the data, and
preliminary October University of Michigan confidence fell to its lowest level
since January.
US economic data, and the data that was reported disappointed expectations. The
weekly jobless claims hit six month highs on more claims processing issues in
California and as government furloughs started to impact the data, and
preliminary October University of Michigan confidence fell to its lowest level
since January.
Minutes of the last FOMC meeting confirmed that the
“close” decision not to taper in September was largely based on
concerns the debt ceiling debate could hurt the economy, and several Fed
Governors and Presidents this week said the government shutdown showed they
made the right call.
“close” decision not to taper in September was largely based on
concerns the debt ceiling debate could hurt the economy, and several Fed
Governors and Presidents this week said the government shutdown showed they
made the right call.
The September FOMC minutes were keenly dissected for
any insight into the Fed’s taper strategy, although there was little new to be
found. The decision not to scale back QE was a close call for some members but
many of those members have already said as much in their public statements.
Another big focus was the importance of maintaining the distinction between QE
taper and low interest rate guidance. There was some discussion of possibly
linking a taper decision with expanded forward guidance, with the latter
potentially including an inflation floor (no rate hikes until inflation is
above 1.5%) or additional information about the Fed’s rate hike plans after
unemployment reached 6.5%.
any insight into the Fed’s taper strategy, although there was little new to be
found. The decision not to scale back QE was a close call for some members but
many of those members have already said as much in their public statements.
Another big focus was the importance of maintaining the distinction between QE
taper and low interest rate guidance. There was some discussion of possibly
linking a taper decision with expanded forward guidance, with the latter
potentially including an inflation floor (no rate hikes until inflation is
above 1.5%) or additional information about the Fed’s rate hike plans after
unemployment reached 6.5%.
With little fanfare, President Obama nominated Janet
Yellen for the Fed Chairman post, making the safe and expected choice for
continuity of the Bernanke legacy.
Yellen for the Fed Chairman post, making the safe and expected choice for
continuity of the Bernanke legacy.
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