Ed’s Daily Notes for July 16th   Leave a comment

Bloomberg: Yellen Says Weak Job Market Shows U.S. Still Needs Stimulus

Federal Reserve Chair Janet Yellen told lawmakers the central bank must press on with record monetary stimulus to combat persistent job-market weakness.

“There are mixed signals concerning the economy,” Yellen said in response to questions during testimony to the Senate Banking Committee today. “We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates.”

While her “overall view is more positive,” Yellen said low wages are one sign of “significant slack” in labor markets, even after the jobless rate fell to an almost six-year low. In unusually emotive language for a central banker, she talked about the “psychological trauma” suffered by the unemployed and their families.

…In prepared testimony, Yellen repeated that interest rates are likely to stay low for a “considerable period” after the Fed ends its asset-purchase program, which she said could happen following the October meeting.

Translation: Nothing to see here folks. Move along…

Bloomberg: Yellen Sees Risk of Bubbles in Leveraged Loan Market

Federal Reserve Chair Janet Yellen warned she sees signs of asset price bubbles forming in some markets such as those for leveraged loans and lower-rated corporate debt, while indicating stocks aren’t overvalued.

“We’re seeing a deterioration in lending standards, and we are attentive to risks that can develop in this environment” of low interest rates, Yellen said today in semi-annual testimony to the Senate Banking Committee.

With stocks hovering near record highs, Yellen signaled she isn’t worried about frothy markets broadly, saying in prepared remarks that equities, real estate and corporate bond values are in line with historical norms. The Fed needs to hold its benchmark policy rate near zero, where it’s been since December 2008, until the labor market improves and inflation accelerates, she reiterated.

In a report accompanying Yellen’s testimony, the Fed also raised concerns over “equity valuations of smaller firms as well as social media and biotechnology firms,” though it said broader equity markets don’t signal too much investor optimism.

The Standard & Poor’s 500 Index fell 0.2 percent at 3:15 p.m. in New York. The Russell 2000 Index of small companies sank 0.9 percent.

Responding to questions from the committee, Yellen said low interest rates can be conducive to the formation of bubbles, and that the Fed was watching carefully for signs of such increased risk-taking. She cautioned that the central bank will not “be able to catch every asset bubble.”

Ya think so Janet? Considering the Fed’s history, they tend to cause more asset bubbles than they “catch”.

Don’t forget: Yellen testifies before the U.S. House today at 10 am EST. More fun and games with the Fed head…

Bloomberg: China’s Expansion Accelerates to 7.5%

China’s economic growth accelerated for the first time in three quarters after the government sped up spending and freed up more money for loans to counter a property slump.

Gross domestic product rose 7.5 percent in the April-June period from a year earlier, the statistics bureau said today in Beijing, compared with the 7.4 percent median estimate in a Bloomberg News survey of analysts. June industrial production and first-half fixed-asset investment exceeded projections.

Premier Li Keqiang’s government has brought forward railway spending, reduced reserve requirements for some lenders and cut taxes to protect an annual growth goal of about 7.5 percent that’s under threat from a plunge in property construction and weaker home-price gains. Even with the support, analysts have forecast China is headed for the slowest full-year expansion since 1990.

“The data are quite positive,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “The government will continue to support the key sectors it is supporting now but will not expand to sectors they are not encouraging.”

Industrial production rose 9.2 percent in June from a year earlier, topping the 9 percent median estimate of analysts and 8.8 percent in May. Retail sales increased 12.4 percent from a year earlier, compared with the 12.5 percent median estimate.

Fixed-asset investment excluding rural households increased 17.3 percent in the first half from a year earlier, the statistics bureau said. That compared with the median estimate of analysts for 17.2 percent growth, also the pace in the January-May period.

Is it time to buy China? I would say no, since they reached that number by bringing “forward railway spending” and reducing “reserve requirements for some lenders”. That is government numbers juggling. China is still sensitive to the world economy, and any problems in the U.S. or Europe will get magnified in China.

Posted July 16, 2014 by edmcgon in China, Economy, Federal Reserve, News

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