The Federal Reserve has room to deliver additional monetary stimulus to boost the U.S. economy, Fed Chairman Ben Bernanke told a Congressional oversight panel in a letter.
“There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,” Bernanke wrote to the committee’s chairman, Representative Darrell Issa, in a letter obtained by Reuters on Friday (Aug. 24).
Bernanke at the end of next week will give a closely watched speech at an annual symposium in Jackson Hole, Wyo., which will be closely watched for clues into the prospect of further bond-buying from the Fed.
Asked if it was too soon to consider new monetary easing steps when the Fed’s Operation Twist program aimed at lowering long-term bond yields was still in effect, Bernanke said policymakers must invariably look beyond the immediate term.
“Because monetary policy actions operate with a lag, the stance of policy must necessarily be set in light of a forecast of future performance of the economy,” Bernanke said.
Fed officials sharply revised down their forecasts for U.S. economic growth in June, and another potential round of downward revisions could come at its September meeting.
U.S. gross domestic product expanded at an annual rate of 1.5% in the second quarter, a level seen too weak to lead to a sustained decline in unemployment, which rose to 8.3% in July.
In response to the financial crisis and recession of 2008-2009, the Fed cut rates to effectively zero and bought some $2.3 trillion in mortgage and Treasury bonds to put downward pressure on long-term borrowing costs.
Growth in the manufacturing sector picked up in August, a sign the economy is resisting the global economic chill although a rise in new jobless claims last week pointed to a still-sluggish labor market.
Reuter’s repored that financial information firm Markit said on Thursday (Aug. 23) its “flash” index for U.S. manufacturing edged up a half point to 51.9 in August. A reading above 50 indicates expansion.
That was still some of the weakest growth in the factory sector in the last three years, reinforcing the view that U.S. economic growth will pick up in the second half of the year but remain lackluster.
“The U.S. economy is slowly turning the corner,” said Robbert Van Batenburg, head of global research at Louis Capital Markets in New York.
The reading, based on a survey of purchasing managers, beat expectations and rose despite sluggish overseas demand for American goods.
Still, the modest improvement was not enough to dissuade investors’ bets on more monetary stimulus from the Federal Reserve. U.S. government debt prices rose, although stocks slumped on Wall Street amid signs of further weakness in the global economy.
Many economists think the Fed could unveil a new bond buying program to prop up economic growth as soon as its next meeting Sept. 12-13, although an improvement in hiring this month could make that less likely.
The data on initial jobless claims suggested employers remain cautious about adding staff.
The Labor Department said initial claims for state unemployment benefits rose 4,000 last week to a seasonally adjusted 372,000.
“Jobless claims continue to indicate … a sluggish labor market,” said Peter Cardillo, an economist at Rockwell Global Capital in New York. “The numbers also strengthen the hand of the Fed to aid the economy with more stimulus.”
However, Cardillo and other economists said the slow pace of healing in the labor market doesn’t necessarily point to immediate action by the Fed.
The Federal Reserve is likely to deliver another round of monetary stimulus “fairly soon” unless the economy improves considerably, minutes from the central bank’s August meeting show.
Reuters reported that while the meeting was held before a recent improvement in the economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.
“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the Fed said in minutes to its July 31-Aug. 1 meeting.
Fed officials saw significant risks to an already weak U.S. economy, which grew at a sluggish 1.5% annual rate in the second quarter. The risks include a worsening of Europe’s financial strains and the looming U.S. budget cuts and tax hikes, which have become commonly known as a fiscal cliff.
Many Fed officials supported extending the central bank’s guidance for the likely timing of an eventual interest rate hike, currently set at late 2014, further into the future. But they decided to defer the decision to the Fed’s September 12-13 meeting, when the central bank will release a new round of economic forecasts.
You may be paying more than ever for a late-summer drive.
U.S. drivers are paying an average of $3.72 per gallon today (Aug. 20), The Associated Press reported. That’s the highest price ever on this date, according to auto club AAA, a shade above the $3.717 average on Aug. 20, 2008. A year ago, the average was $3.578.
More daily highs are likely over the next few weeks. The national average could increase to $3.75 per gallon by Labor Day, said Tom Kloza, chief oil analyst at Oil Price Information Service. By comparison, gas prices stayed below $3.70 in late August and early September in both 2008 and 2011. Kloza and other analysts expect prices to start dropping after Labor Day, barring a hurricane or other unforeseen event.
Retail gasoline prices have risen nearly 12% since July 1 because of higher oil prices, and problems with refineries and pipelines that created temporary supply shortages in some regions. An increase in the price of ethanol, which is blended into gasoline, also contributed to the rise in pump prices.
The pace of the increases has slowed considerably, however. Gas rose 19 cents in the two weeks ended Wednesday. It’s up just 1 penny in the five days since. Gas costs about 26 cents more than a month ago and 14 cents more than a year ago, according to AAA, OPIS and Wright Express.
A few drivers are catching a break. Retail prices were lower than this date in 2011 in four states — Montana, Wyoming, Utah and Idaho, said Kloza.
Gasoline prices are up sharply in the past month on surging crude oil costs and refinery woes, and now are likely to make 2012 the costliest year ever at the pump.
USA Today reported that nationally, gasoline averages $3.71 a gallon — up 31 cents since mid-July and is now higher than year-ago levels in 39 states. Prices are likely to continue climbing through August, with little relief until after Labor Day.
The swift, month-long, 9% price climb has lifted 2012′s average to $3.61 a gallon, vs. 2011′s $3.51, which had been the most expensive year ever for motorists. Even with demand expected to recede after the peak summer driving season, 2012 will surpass last year’s price, says Brian Milne of energy tracker Telvent DTN .
The run-up comes at a time when prices typically have peaked for the year, and just weeks after decreasing demand and slowing worldwide economic growth pushed prices well off 2012 highs. The trend had prompted some industry experts to forecast $3 a gallon gasoline by autumn. Now, Milne expects a top at about $3.90 before dropping in September.
Motorists in the Midwest are already paying that much, or more. Fallout from production cuts at four Illinois refineries has pushed prices in Illinois and Michigan to $4 or higher, while West Coast prices rocketed 40 cents a gallon following the Aug. 6 fire at a Northern California Chevron refinery. (A lawsuit was filed in Contra Costa County Superior Court Wednesday on behalf of nine nearby residents, alleging Chevron was negligent in refinery maintenance. The company says its reviewing the lawsuit.
Crude oil prices continue to rise. Since bottoming at about $78 a barrel in late June, benchmark West Texas Intermediate has soared more than 20%. In mid-day Thursday trading, crude was priced above $95 a barrel, a three-month high.
Scott Anderson, chief economist at Bank of the West, says if prices continue to rise, they could crimp a rebound in consumer spending. The Commerce Department reported Tuesday that July consumer spending rose 0.8%, the largest gain in five months.
Like summer temperatures, gasoline prices show few signs of cooling off.
According to a report by USA Today, after dipping to $3.33 a gallon and flirting with $3 in the South, the nation’s average gas price climbed 17 cents over 26 consecutive days in July. It was the first monthly gain since March and the biggest July jump since at least 2000, AAA said Tuesday (July 31).
Nationally, regular gasoline now averages $3.50 a gallon, although it’s pricier in 25 states.
“More and more locations say prices are above where they were last year — and last year was the most expensive for motor fuel,” says Oil Price Information Service analyst Tom Kloza. Gas averaged $3.71 a gallon in July 2011.
The Midwest is particularly pinched. Refinery woes in Indiana and Illinois have crimped output, propelling prices to as high as $4.29 a gallon in Chicago and to near $4 levels in several regions of the Rust Belt.
“It’s been pretty lousy,” says Patrick DeHaan, senior energy analyst for price tracker gasbuddy.com. “In some states, there’s been a 40- to 50-cent increase.”
Hawaii has the nation’s highest average gas price at $4.15 a gallon, followed by Alaska at $4 and Connecticut at $3.82.
The three states with the lowest prices are in the South: South Carolina at $3.20, Mississippi at $3.24 and Alabama at $3.25. State taxes, which can tack on up to 42 cents a gallon, explain part of the difference.
Nationally, prices have climbed in tandem with crude oil. Although benchmark West Texas crude lost 2% Tuesday, it was up about 3% for July — the first monthly gain since April. Much of that came on speculation that Europe’s debt crisis would finally be resolved and hope that the Federal Reserve would launch new measures to stimulate the U.S. economy, DeHaan says.
August prices are likely to climb to a national average of about $3.60 before pulling back after Labor Day, says Kloza, who still expects gas to slip to $3 a gallon by November as seasonal demand slips.
Consumer spending in the U.S. stagnated in June as labor-market weakness prompted Americans to use the biggest gain in incomes in three months to build savings.
Bloomberg reported that household purchases, which make up 70% of the economy, were unchanged last month after a 0.1% decline in May, a Commerce Department report showed today in Washington.
The median estimate in a Bloomberg News survey of economists called for a 0.1% rise. Incomes climbed 0.5%, lifting the saving rate to 4.4%, the highest in a year.
Americans may be growing less pessimistic about job prospects later in the year, with another report today (July 31)showing consumer confidence rose unexpectedly for the first time in five months. Federal Reserve policy makers meeting today and tomorrow may wait for more employment data before deciding whether action is needed to boost an economy that’s slowed for two straight quarters.
“There’s been some back-tracking in the labor market so consumers are choosing to save the income rather than spend it,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who correctly projected the stagnation in purchases. “The third quarter will be pretty subdued.”
Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.
The Wall Street Journal reported that since their June policy meeting, officials have made clear — in interviews, speeches and testimony to Congress — that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.
Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31, and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.
According to the Wall Street Journal, Fed officials could take some actions in combination or one after another. Fed Chairman Ben Bernanke, in testimony to Congress last week, listed several options under consideration, including a new program of buying mortgage-backed or Treasury securities, new commitments to keep short-term interest rates near zero beyond 2014 or an effort to push already-low benchmark short-term interest rates even lower.
Determined to keep trying to get the economy going without causing inflation, the Fed is exploring other novel measures. One mentioned by Bernanke in his testimony would be to use a facility the Fed calls its discount window to provide cheap credit directly to banks that make new business or consumer loans.
Bernanke told Congress he wants to see more progress in reducing unemployment and he expressed frustration the economy appears to be “stuck in the mud.” The Fed chairman has spoken in the past about the importance of the economy achieving what he calls “escape velocity” — growth that is fast enough to give the economy forward, self-reinforcing momentum.
The Federal Reserve stands ready to offer additional monetary support to a U.S. economy that has slowed significantly in recent months, Fed Chairman Ben Bernanke told lawmakers on Tuesday (July 17).
Reuters reported that Bernanke told the Senate Banking Committee the recovery was being held back by tighter financial conditions due to Europe’s debt crisis and uncertainty surrounding U.S. fiscal policy.
Financial markets had looked forward to Bernanke’s testimony for any signs the central bank was moving closer to a third round of bond purchases to support the economy. But the Fed chief hewed closely to the message of watchful waiting that the central bank’s policy panel delivered in June, and yielded few new clues.
“Reflecting its concerns about the slow pace of progress in reducing unemployment and the downside risks to economic growth, the committee made clear at its June meeting that it is prepared to take further action,” Bernanke said in his prepared remarks on the Fed’s semi-annual monetary policy report.
The Fed has held overnight borrowing costs near zero since December 2008 and has bought $2.3 trillion in government and mortgage-related debt in an effort to push long-term interest rates lower.
As the recovery faltered, it has promised to hold rates at rock bottom levels until at least last 2014 and has extended the average maturity of bonds in its portfolio in a further effort to depress long-term borrowing costs.
Despite the Fed’s support, the economy is growing too slowly to lower unemployment. U.S. gross domestic product expanded at a tepid 1.9% annual rate in the first quarter, and economists think its second quarter performance was even weaker.
Bernanke told lawmakers recent deterioration in the labor market suggests the nation’s 8.2% jobless rate will come down all too gradually, admitting for the first time that the softness could not be explained away by purely seasonal factors.
U.S. consumer sentiment cooled again in early July to its lowest level in seven months as Americans took a dim view of their finances and job prospects, a survey released on Friday showed.
According to Reuters, the Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment fell to 72.0 from 73.2 in June, frustrating economists’ expectations for a slight gain to 73.4.
It was the lowest level since December 2011.
Only 19% of consumers expected to be financially better off in the coming year, the lowest proportion recorded by the survey. Americans were also gloomy about their longer-term prospects with 39% anticipating their situation would be better in five years.
“The greatest concern to consumers is that wage and job growth will remain depressed over the foreseeable future, and that these meager gains are likely to be further diminished in the years ahead by rising taxes and benefit cutbacks,” survey director Richard Curtin said in a statement.
The gauge of consumer expectations slipped to 64.8 from 67.8, also the lowest since last December.
While there was widespread recognition of an economic slowdown, that did not have a large impact on consumers’ economic outlook, and the barometer of current economic conditions rose to 83.2 from 81.5.
News of job losses was mentioned twice as frequently as job gains, the opposite of what was seen in the first six months of the year.