AuthorTopic: Da Fed: Central Banking According to RE  (Read 52563 times)

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🏦 Fed says it will keep stimulus coming for years
« Reply #330 on: June 11, 2020, 01:03:29 AM »
MOAR handouts for the $RICH$! 🤑

Ain't Capitalism great?   ::)

MEANWHILE WTF IS MY STIMULUS?!?!?

RE

https://www.cnn.com/2020/06/10/economy/federal-reserve-june-meeting/index.html

Fed says it will keep stimulus coming for years

<a href="http://www.youtube.com/v/NG5ftZfeUv0" target="_blank" class="new_win">http://www.youtube.com/v/NG5ftZfeUv0</a>

By Anneken Tappe, CNN Business

Updated 4:23 PM ET, Wed June 10, 2020
A face mask is seen in front of the New York Stock Exchange (NYSE) on May 26, 2020 at Wall Street in New York City. - Global stock markets climbed Monday, buoyed by the prospect of further easing of coronavirus lockdowns despite sharp increases in case rates in some countries such as Brazil. Over the weekend, US President Donald Trump imposed travel limits on Brazil, now the second worst affected country after the United States, reminding markets that while the coronavirus outlook is better, the crisis is far from over. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)

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New York (CNN Business)The Federal Reserve left interest rates unchanged Wednesday and committed to maintaining its unprecedented stimulus plan until the economy "has weathered recent events."
That means it could be years until interest rates rise again. The Fed's "dot plot", which reflects the forecasts of the central bank's policy makers, isn't showing any rate hikes this year or in 2021. Even in 2022, the majority of policymakers believe rates will remain at the current rate levels.
"We're not thinking about raising rates -- we're not even thinking about thinking about raising rates," Fed Chairman Jerome Powell told reporters during Wednesday's press conference.
So far, the central bank has also opposed negative interest rates, which other developed world central banks have had to revert to. But voices supporting negative rates from within the Federal Reserve network are getting louder.
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The market seemed pleased with the central bank's update, and stocks briefly jumped. Lower interest rates allow companies to borrow at lower rates, which is good for the stock market.
The Fed also said it would increase its purchases of Treasury securities and mortgage-backed securities to keep the market functioning smoothly.
"For now it gives the market what it wanted and needed," Drew Matus, chief market strategist at MetLife Investment Management.
The Fed slashed interest rates to near zero in March at the outset of the coronavirus pandemic. Since then, the central bank has committed billions of dollars to supporting financial markets, businesses, and state and local governments.
But the central bank, as well as the federal government, might have to do more to get the economy back on its feet, Powell reiterated in Wednesday's press conference.
Unemployment crisis
One of the Fed's chief goals is to foster economic conditions that achieve both stable prices and maximum sustainable employment.
The central bank acknowledged the "tremendous human and economic hardship" that the coronavirus pandemic has brought upon people around the world. By December, the Fed expects the unemployment rate to fall to 9.3%, down from 13.3% in May, but still substantially above the 3.5% rate from February -- a near 50-year low.
Millions of people won't get their old jobs back, "and there may not be a job for them for some time," said Powell during the news conference.
Even by the end of 2022, the unemployment rate is still projected to be 5.5%, far higher than at the start of this year.
Powell reiterated that some demographic group, notably women, black and Hispanic workers, are bearing the brunt of the unemployment crisis.
The Fed doesn't expect the economic difficulties will let up anytime soon: It updated its economic projections for the year, predicting a 6.5% drop in gross domestic product, the broadest measure of the economy, in 2020.
But Powell rejected comparisons to the Great Depression, telling reporters he doesn't think it "is a good example or likely outcome for a model of what's happening here at all, I really don't."

Part of the uniqueness of the pandemic recession, for example, is that in a way it's manmade: The economy was artificially switched off to prevent the spread of the virus.
"The path ahead for the economy is highly uncertain and continues to depend to a significant degree on the path of the pandemic," Powell said.
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Offline RE

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🏦 🛢️ How The Fed Bailed Out U.S. Oil And Gas
« Reply #331 on: June 30, 2020, 04:01:24 AM »
https://oilprice.com/Energy/Energy-General/How-The-Fed-Bailed-Out-US-Oil-And-Gas.html

How The Fed Bailed Out U.S. Oil And Gas
By Nick Cunningham - Jun 29, 2020, 6:00 PM CDT


The Trump administration has taken dozens of actions during the Covid-19 pandemic to benefit the oil and gas industry, such as opening new lands for leasing, watering down environmental protections, cutting royalty rates on federal lands, among a long list of other actions.

But one of the more consequential interventions came from the Federal Reserve. In March, when financial markets went into a tailspin, the U.S. Congress authorized the Federal Reserve to inject trillions of dollars into financial markets. That included the capacity to lend directly to individual sectors and companies in the real economy, along with indirect purchasing of bonds to specific sectors.

In other words, the Fed was authorized to buy tens of billions of dollars in corporate bonds in the energy industry, in addition to direct lending to companies themselves.

The problem is that the Fed may be propping up an industry that was struggling before the market downturn.

More than 200 North American oil and gas companies have gone bankrupt since 2015. The U.S. shale industry, in particular, has lost $300 billion and “peaked without ever making money,” according to a recent report.

These problems existed before the Covid-19 pandemic. Of the 158 sub-industries defined by the Global Industry Classification Standards (GISC), “oil and gas drilling” saw the worst decline in credit ratings over the last five years (through the end of 2019, before the onset of the pandemic), plunging by 44 percent, according to a new report from Influence Map. Companies in other sectors performed much better – healthcare companies saw an average decline in credit quality by only 6 percent, while communications improved by 4 percent, and real estate by 3 percent.

Because the energy sector has been on a declining trend for years, it is much harder to justify Fed intervention based on the logic that this is a temporary setback related to the coronavirus, as is the case for other sectors.

The extraordinary intervention “represents support for parts of the economy which may have been in secular decline prior to the pandemic,” the Influence Map warned. “If this is the case, it raises questions surrounding moral hazard and distortion of free markets as well as the taking on of excessive risk by the Federal Reserve on behalf of US taxpayers.”
Related: Suppliers Fight For Dominance In This Crucial Gas Market

The average credit rating for oil and gas drillers is the equivalent of an S&P “B” rating, the report says, which puts the sector “firmly in non-investment grade or junk territory.”

The Fed made an initial purchase of $1.3 billion corporate bonds at the end of May. Roughly 8 percent of that went to oil and gas, despite the sector only representing 3 percent of the S&P 1500, Influence Map found. Moreover, of the $100 million that went to oil and gas, a fifth of that went to companies with credit ratings in junk territory.

Meanwhile, Politico reports that data released on Sunday from the Fed shows that 20 percent of the Fed’s bond purchases went to energy companies and utilities. It was the first time that the Fed released data on individual companies. Bond purchases included those from ExxonMobil, Energy Transfer Operating, Diamondback Energy, Duke Energy, Williams Co., Phillips 66, Sabine Pass Liquefaction, FirstEnergy Corp., DTE Electric, Florida Power & Light and Marathon Petroleum, among others.

If extrapolated and scaled up to the $250 billion authorized to the Fed, American taxpayers could be on the hook for $19 billion in oil and gas bonds, with $4 billion of that potentially issued to companies with a “junk” rating.

Such a massive intervention represents “market distorting behavior” and supports “inefficient economic activities,” the Influence Map report concludes.

However, the Fed’s reach only goes so far. Despite help from the Fed, which lowers the cost of capital, the fundamental business model is still challenged. Bankruptcies are still increasing, including the notable bankruptcy from Chesapeake Energy, a company that arguably better illustrates unrestrained debt-fueled drilling and land-flipping than any other U.S. shale company.

By Nick Cunningham of Oilprice.com
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