Ben Benanke's Incompetent

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"One of the many striking features of 2007 to 2009 has been the sudden freeze in the market for the rollover of short-term debt. From an institutional perspective, the inability to borrow overnight against high quality but long term assets was a market failure that effectively led to the demise of a substantial part of investment banking in the United States…it led to the collapse of banks and other financial institutions that had relied on a significant maturity mismatch between assets & liabilities, and in particular, on the rollover of short-term wholesale debt in the asset-backed commercial paper (ABCP) and overnight sale and repurchase (repo) markets."

libertystreeteconomics.newyorkfed.org/2011/10/short-term-debt-rollover-risk-and-financial-crises.html

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IOeRs compete with money market “paper”. The financial instruments traded in the money market include Treasury bills, commercial paper, banker’s acceptances, certificates of deposit, repurchase agreements (repos), municipal notes, federal funds, short-lived mortgage and asset-backed securities & Euro-Dollar CDs (liabilities of a non-U.S. banks operating on narrower regulatory margins).

The money market is differentiated by its position on the yield curve (i.e., short-term borrowing & lending with original maturities from one year or less). The domestic liquidity funding is benchmarked by the London interbank market LIBOR indexes & foreign exchange swaps.

========================

Another Bernanke mistake.

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abcnews.go.com/blogs/business/2011/10/volcker-rule-unveiled-may-slash-wall-street-bonuses/

"it prohibits those financial companies from engaging in “short-term proprietary trading of any security, derivatives and certain other financial instruments” from an entity’s own funds. Second, it “prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund.”

The rule would require banks to establish an “internal compliance program” and banks with “significant trading operations” to report federal agencies. The rule is subject to exemptions, which financial watch-dogs say are not stringent enough and banks say are too complex.

The Treasury said the rule details whether a nonbank financial company should be subject to “enhanced supervision” to prevent a future financial crisis. In the recent financial crisis, financial distress at certain nonbank financial companies contributed to “a broad seizing up of financial markets,” according to the council.

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The member banks should be strickly regulated in both their assets & liabilities. After all, they create new money when they lend & invest.

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seekingalpha.com/article/299261-fomc-we-have-a-money-demand-problem?ifp=0&source=email_partial_daily_dispatch

"M2 surged in July and August, as investors and asset managers sought the relative safety and liquidity of bank deposits and other assets that make up the M2 aggregate. Notably, institutional investors, concerned about exposures of money funds to European financial institutions, shifted from prime money funds to bank deposits, and money fund managers accumulated sizable bank deposits in anticipation of potentially large redemptions by investors. In addition, retail investors evidently placed redemptions from equity and bond mutual funds into bank deposits and retail money market funds." FED MEETING

...the share of household's liquid assets (cash, checking account, time and saving deposits, money market accounts, and treasury securities) as a percent of all household's assets is closely tied to the swings in M2 velocity.

...household's share of liquid assets never has returned to its pre-crisis level...velocity too has yet to return to its pre-crisis level.

...From the peak of household asset values in 2007:Q2 to the latest data for 2011:Q2, households have lost around $8.8 trillion worth of non-liquid assets. Despite these large losses and the subsequent slump in personal-income growth, households have somehow increased their holdings of money and money-like assets by a staggering $1.6 trillion:

...Most of the increase has come in the form of time and saving deposits, though treasuries have been important too. Money assets alone (cash, checking account, time and saving deposits, and money market accounts) have remained elevated and close to their peak value in late 2008.

... A closer look at the M2 data, however, shows that main growth is in saving deposits...It is all about holding precautionary money balances.

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FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Regulation D; Docket No. R-1433]
RIN No. 7100 AD 83
Reserve Requirements Of Depository Institutions: Reserves Simplification and
Private Sector Adjustment Factor

“A depository institution satisfies its reserve requirement by its holdings of vault cash and, if vault cash is insufficient to meet the requirement, by a balance maintained in an account at a Federal Reserve Bank (Reserve Bank). The amount of balances that an institution must maintain if its reserve requirement is not satisfied by vault cash is referred to as the reserve balance requirement. The balance that an institution maintains to satisfy its reserve balance requirement can be maintained either in the institution’s own account at a Reserve Bank or in a pass-through correspondent’s Reserve Bank account”

www.jstor.org/pss/1828828

“Until Dec 1959 banks could not count vault cash among their legal reserves. Since then this limitation was gradually lifted, the last step occurring on November 24 1960 when all vault cash became countable as reserves. The change in the legal status of vault cash has given rise to speculation and controversy among economists about its effects on the possible behavior of banks, and particularly on the level of free reserves that banks desire to keep, for a given level of deposits.

Milton Friedman tried to prove, on theoretical grounds, that the desired level of free reserves would increase."

======================

Our monetary authorities should not confuse (comingle), prudential or liquidity reserves (i.e., contractual clearing balances) with legal reserves or fractional reserve requirements (which are a credit control device).

Contractual clearing accounts were set up to deal with those banks with a history of frequent daylight or overnight overdrafts. It was to facilitate clearing of payments and reduce the risk of an overdraft in their Reserve Bank accounts. They were not designed as a way to restrict the growth of commercial bank credit.

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Intel Corporation(NasdaqGS: INTC )
Real Time 23.30 0.18 (0.76%) 1:16PM EDT

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"The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history. Bernstein and Romer knew in 2008 that the economy had sustained a tough blow; they didn’t know that it had been run over by a truck"

======================

Nominal gDp is an historical metric (i.e., has a long reporting lag), not a forward-looking one. Monetary flows (or aggregate monetary purchasing power), is equal to nominal gDp. MVt is forward-looking & the correct metric to target.

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Kocherlakota Says Fed Risks Its Credibility With Easing as Inflation Rises - By Joshua Zumbrun - Oct 13, 2011

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the central bank has put its credibility at risk by easing during a year in which inflation rose and unemployment fell.

...The speech marked the first time Kocherlakota has spoken about policy since opposing a Federal Open Market Committee decision to sell $400 billion of short-term Treasury securities and replace them with $400 billion of longer-term securities.

...“As the economy recovers, the FOMC should respond by reducing the level of monetary accommodation,” Kocherlakota said.

...Inflation has accelerated since last year too. Prices rose 2.9 percent in August from a year earlier, according to the personal consumption expenditures index. Costs excluding food and energy rose 1.6 percent.

...Policy makers also decided on Sept. 21 to reinvest maturing housing debt into mortgage-backed securities to help the depressed real estate industry and in part to keep the Fed’s Treasury holdings from getting too large and possibly causing a “deterioration in Treasury market functioning,” the minutes said.


www.bloomberg.com/news/2011-10-13/kocherlakota-says-fed-risks-its-credibility-with-easing-as-inflation-rises.html

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www.newyorkfed.org/markets/ambs/

Reinvestments of Principal Payments on Agency Securities into Agency MBS

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Percent change at seasonally adjusted annual rates M1 M2
---------------------------------------------------------------------
3 Months from June 2011 TO Sep. 2011........36.6.......21.4
6 Months from Mar. 2011 TO Sep. 2011........24.9.......14.8
12 Months from Sep. 2010 TO Sep. 2011......20.0.......10.2

============

Still smokin!

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"Bank of America Corp. (BAC) and Citigroup Inc. (C) are among firms planning to repay rather than roll over their share of $231 billion raised under a U.S. loan program meant to help the economy as the business slowdown crimps demand for credit."

“The real issue is that the banks are trying to get smaller,” he said.

www.bloomberg.com/news/2011-10-14/lenders-will-shun-231-billion-rollover-of-u-s-emergency-loans.html

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Obviously, something happened in 4Q2008, but what? On October 6, 2008, the Federal Reserve started paying interest on bank reserves (IOR) for the first time in its (then) 95-year history.

Since the Fed started paying IOR, the IOR interest rate has continuously been higher than the market interest rate on 90-day T-bills. The most violent contraction in RGDP occurred during 4Q2008, when the average spread between the 90-day T-bill rate and the IOR rate was the greatest, at -0.83 percentage points. The spread narrowed sharply starting in 1Q2009, and it averaged only -0.09 percentage points during the first quarter of the economic recovery (3Q2009). However, the 90-day T-bill – IOR spread has widened since then, and it averaged -0.23 percentage points during 3Q2011. Directionally, as this spread has gotten larger, RGDP and employment growth have slowed.

The current worldwide flight to risk-free, U.S. dollar-denominated assets has driven 90-day T-bill rates to near zero. At times, they have been negative. Under the circumstances, we cannot count on rising T-bill rates to save us from IOR. In any case, given the Fed’s current thinking, rising interest rates would likely cause them to raise their Fed Funds target, and with it the IOR interest rate.

Yes, “This time, it’s different”. In fact, it’s not just different, it’s FUBAR*. However, it doesn’t need to be. The first—and essential—step in getting the U.S. economy back to normal will be for the Fed to stop paying interest on bank reserves.

www.forbes.com/sites/louiswoodhill/2011/10/13/this-time-amid-this-obama-recovery-its-fubar/3/

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"Brent crude is down $25 and that amounts to about a $3 tailwind to S&P earnings,"

finance.yahoo.com/blogs/breakout/october-rally-more-legs-jpm-tom-lee-203713571.html

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Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

09/21/11 0.01 0.01 0.04 0.11 0.21 0.37 0.88 1.36 1.88 2.69 3.03
10/14/11 0.02 0.02 0.06 0.11 0.28 0.50 1.12 1.71 2.26 2.97 3.22

Both long term & short term interest rates have edged higher after the Sept. 21st announcement (Operation Twist - the attempt to flatten the yield curve).

(MVt), or the lag in long-term money flows, says that an increase in inflation (& inflation expectations), is forthcoming in the 4th qtr.

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"In 1977, Congress first gave the Federal Reserve a dual mandate to promote both “maximum employment” and “stable prices.” At the Republican presidential debate on Sept. 12, the major candidates argued that the Fed should instead focus squarely on the goal of long-run price stability."

www.bloomberg.com/news/2011-09-16/end-the-fed-s-dual-mandate-and-focus-on-prices-john-b-taylor.html

"Market monetarism is a school of thought in macroeconomics rapidly gaining prominence. Market monetarists advocate that central banks target a growth path for nominal Gross Domestic Product.... (At each future date, a level for nominal Gross Domestic Product is specified, with the levels growing at a slow, steady rate.).... In recovery from a recession, market monetarists place LESS EMPHASIS ON CONTAINING INFLATION, and more on returning the economy to a normal growth path

=================

As the tide turns.

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www.clevelandfed.org/research/data/inflation_expectations/index.cfm

Cleveland Fed Estimates of Inflation Expectations
News Release: September 16, 2011

The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.37 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.

The Cleveland Fed’s estimate of inflation expectations is based on a model that combines information from a number of sources to address the shortcomings of other, commonly used measures, such as the "break-even" rate derived from Treasury inflation protected securities (TIPS) or survey-based estimates. The Cleveland Fed model can produce estimates for many time horizons, and it isolates not only inflation expectations, but several other interesting variables, such as the real interest rate and the inflation risk premium. For more detail, see the links in the See Also box at right.

Estimates are updated once a month, on the release date of the CPI.The methodology used to generate the estimates was changed slightly starting June 15, 2011, and it is documented in this working paper.

NOTE: This release is available via E-mail.

(1) Real interest rates
(2) Year expected inflation & inflation risk premium
(3) Expected inflation yield curve

==================

Expect 4th qtr inflation to increase at a greater rate than real-output. I.e., expect stagflation.

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www.pimco.com/EN/insights/pages/RepeatingTheFuture.aspx

(Oct 12): Based on all three factors -- reasonable valuations, healthy earnings growth and attractive dividends -- we believe with careful stock selection investors can earn attractive returns during this extended period of slow economic growth.

PIMCO is a long-term investor, and we do not try to time short-term swings in equity markets. Doing so successfully is almost impossible. We focus on whether near-term events change our long-term outlook for the companies we like. We also work to limit the downside risk of equity portfolios through the use of “tail-risk” hedges.

For long-term investors, meaning those prepared to stay invested for three, five and even 10 years, who can endure volatility, we believe equities can offer attractive returns. If you are saving to buy a house in six months, you likely don’t want to invest in equities today. However, if you are saving for your retirement or a child’s education, then investing in equities makes sense.

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Is it time to buy major indexes like the Dow Jones Industrials (DIA) and the S&P 500 (SPY) according to the “Halloween Indicator?”

According to the “sell in May and go away” strategy, we’ve just ended the worst six months of the year and around Halloween will be entering the best six months of the year.

Seasonality tells us that statistically the months from the end of October through the end of April, are in fact the BEST MONTHS OF THE YEAR FOR INVESTING while the six months from May through October are the “worst.”

....It turns out there is a body of research that supports this theory and one of the best sources of information on this subject comes from “Stock Trader’s Almanac” which actually has developed a trading indicator based on this seasonality and the historical returns it has generated.

seekingalpha.com/article/299742-halloween-indicator-trick-or-treat

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"We may have just received a significant bullish buy signal for US equities. I have been tracking the percentage of stocks on the NYSE trading above their 200 Day Moving Average. On top of this percentage I have overlaid a 50 Day Moving Average.

This technical set-up has been a rather reliable indicator of bullish breakouts over the last three years.

...It may be time to drown out the doom-and-gloom headlines and go long US equities."

seekingalpha.com/article/299843-a-significant-bullish-buy-signal-for-u-s-equities

================

I don't subscribe to this theory but I do keep track of the number of forecasters saying essentially the same thing.

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"The U.S. government posted its third consecutive annual budget deficit in excess of $1 trillion in the fiscal year ended Sept. 30"

www.bloomberg.com/news/2011-10-14/u-s-budget-deficit-increased-to-1-3-trillion-in-fiscal-2011.html

==============

QE2 monetized much of the last fiscal year's budget deficit. So the current impact of this spending has been disguised, & it's future impact delayed. The future impact of such deficits, without drastic spending cuts, is alarming. We can expect a debilitating level of taxation, perhaps confiscatory capital levees, & a totalitarian environment in which to conduct business & make investments.

I.e., with the constant roll-over of some of the long-term debt and it becomes obvious that the burden of higher interest rates (esp. from the historic low levels), will be compounded. The burden becomes a function of the major portion of the debt, not just the current deficits. The burden, in fact, becomes exponential. In other words, if the trend is not stopped, the debt inevitably has to be repudiated.

"A special 12-member congressional committee has been ordered to find $1.5 trillion in savings over the next decade under the terms of the debt-ceiling deal reached in August. If Congress fails to act on the group’s recommendations by Dec. 23, the compromise will trigger automatic cuts." (With 9% unemployment this would seem to be too low).

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Time to short interest rates:

ProShares UltraShort Lehman 7-10 Year Treasury ETF (PST)

ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT)

"Thirty-year yields rose 22 basis points, or 0.22 percentage point, to 3.23 percent yesterday in New York from a week earlier, according to Bloomberg Bond Trader prices. It was the long bonds’ third weekly loss, the longest since the three weeks ended Jan. 21"

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"All along the Fed should have either prevented or corrected the steep fall in nominal spending that took place in late 2008 and early 2009. The central bank of Sweden was able to do so, but not the Fed."

"How much easier life would have been for the Fed--both operationally and politically--had it stated up front in 2008 that it was committed to maintaining trend nominal spending at any cost. This would have better anchored nominal spending and inflation expectations that in turn would served to stabilize aggregate demand. Instead, we have had three years of effectively tight monetary policy"

macromarketmusings.blogspot.com/2011/10/since-when-is-fed-doing-its-job.html

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==================

DJIA bottomed @ 10,640.55. Current price @ 11,452.51 or 812 points from the October 3rd bottom.

The stock market will continue to rise as nominal gDp rises.

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The markets are still dominated by excessive speculation, day trading hedge funds, traders using computer algorithms, high frequency traders chasing price trends & entering excessively large positions to push the markets in their direction, etc.

The intra-day prices aren't as important as the end-of-the-day prices. The weekly prices are more important than the daily closing position. The monthly prices are the most important.

We've had an outside day, an outside week, & now are looking for the technical reversal confirmation of an outside month.

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Knowledge provides an advantage over those who read & react to the daily news features. The news is reported with a lag. It does not reflect future events.

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"The U.S. economy is likely to experience a period of stagflation worse than the 1970s, which would cause bond yields to spike, commodity bull Jim Rogers told CNBC on Friday in Singapore. Rogers said"

www.cnbc.com/id/44900450/

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Wholesale prices in the U.S. rose more than forecast in September, boosted by gasoline, food and trucks, indicating inflationary pressures continue to bubble up the production line.

The producer price index climbed 0.8 percent, the most in five months, after no change in August, Labor Department figures showed today in Washington. Economists projected a 0.2 percent gain, according to the median of 71 estimates in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy, gained 0.2 percent, also more than predicted.

www.bloomberg.com/news/2011-10-18/wholesale-prices-in-u-s-rose-more-than-economists-estimated-in-september.html

==================

Look for increasing rates of inflation in the 4th qtr (& higher bond yields).

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USA October 14 2011

Section 19 of the Federal Reserve Act (the Act) authorizes the Board of Governors of the Federal Reserve System (the Board) to impose reserve requirements on certain deposits and other liabilities of depository institutions for the purpose of implementing monetary policy.

The Board’s Regulation D (Reserve Requirements of Depository Institutions, 12 CFR part 204) implements section 19 of the Act. Transaction account balances maintained at each depository institution are subject to reserve requirement ratios of zero, three, or ten percent, depending on the level of transaction accounts at that institution.

On October 11, the Board requested public comment on its proposed amendments to Regulation D to simplify the administration of reserve requirements. The proposed amendments would create a common two-week maintenance period for all depository institutions (eliminating the one-week maintenance period generally used by smaller institutions), create a penalty free band around reserve balance requirements in place of carryover and routine penalty waivers, discontinue as-of adjustments related to deposit revisions, replace all other as-of adjustments with direct compensation, and, somewhat more significantly, eliminate the contractual clearing balance program.

Although the contractual clearing program would be eliminated, the Board does not anticipate that small depository institutions (those institutions with assets of $175 million or less) would be negatively affected because small depository institutions would receive explicit interest on excess balances instead of earnings credits on clearing balances. Small depository institutions could then use this explicit interest to pay for Reserve Bank priced services or for other purposes.

The proposed amendments are designed to reduce the administrative burdens and operational costs associated with reserve requirements for both depository institutions and the Federal Reserve. The Board is requesting comment on all aspects of the proposal. In connection with the proposed elimination of the contractual clearing balance program, the Board is requesting comment on several issues related to the methodology used for the Private Sector Adjustment Factor that is part of the pricing of Federal Reserve Bank services.

The Board proposes to eliminate the contractual clearing balance program and the use of as-of adjustments no earlier than the first quarter of 2012 and to implement a common reserves maintenance period and the penalty-free band around reserve balance requirements no earlier than the third quarter of 2012. The Board requests comment on whether the proposed effective dates are appropriate. The Board specifically seeks comment on the time that depository institutions will need to effect the changes in their systems to adapt to these changes and whether the cost of adapting to these changes will be material.

Proposed amendments to Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire) would eliminate references in Regulation J to "as-of adjustments," consistent with the proposed amendments to Regulation D, and make clarifications about the handling of checks and funds transfers sent to the Federal Reserve Banks.

www.lexology.com/library/detail.aspx?g=6e8c9f17-621b-41a4-b3c2-80e176cef86e

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"As notes long-time Fed watcher Lacy Hunt of Hoisington Investment Management in Austin, Texas, the unintended consequences of its policies have all but superseded their professed aims. For instance, QE2—the Fed's purchase of $600 billion of Treasury securities completed in June—CAUSED THE CURRENT SLOWDOWN instead of giving the economy a boost, he writes in Hoisington's Quarterly Review and Outlook. Real disposable income was lower in August than in December, in part because of the jump in commodity costs. "While rising equity values helped a few consumers, inflation in necessities, such as food and fuel, decimated real incomes for the average family. Thus, the emergent cyclical weakness that lies ahead can be directly related to the unintended consequences of quantitative easing," Hunt says.

The Fed's current policy of attempting to flatten the yield curve by buying long-term Treasury securities and offsetting it with sales of shorter-dated paper—Operation Twist 2.0, after a similar gambit in the early 1960s—also could backfire

online.barrons.com/article/SB50001424052748703492704576622992970964046.html

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Oct 18, 2011

www.bloomberg.com/news/2011-10-18/undermining-bernanke-energizes-republican-candidates-joining-fed-insiders.html

The U.S. Federal Reserve is under more pressure than at any point in three decades over Chairman Ben S. Bernanke’s efforts to jumpstart the economy, and the criticism threatens to undermine support for the central bank.

Mitt Romney, once a Bernanke defender, NOW SAYS HE WOULD REPLACE HIM, as have Herman Cain, Newt Gingrich and other Republican presidential contenders. Republican congressional leaders have urged the chairman to “resist” further action. And even some Fed presidents came out against the central bank’s recent attempts to lower long-term interest rates.

...Some lawmakers and economists say the U.S. central bank shares the blame because it failed to build a consensus for its unprecedented activism. The Fed’s own internal divisions were underscored by three reserve bank presidents DISSENTING AT EACH OF THE LAST TWO MEETINGS, the most since 1992. And Fed officials are looking for ways to explain their policies in greater detail, minutes of their September meeting show.

They also made an unusual move back into what economists call CREDIT POLICY, or support for a specific segment of the economy, by deciding to reinvest maturing mortgage and housing agency debt back into their $871 billion mortgage-backed securities portfolio.

Brad Miller, a North Carolina Democrat and member of the House Financial Services Committee, said the “suspicion” already lurking among Democrats and Republicans at the ideological extremes was compounded by Bernanke’s activism because the Fed SUPPORTED SPECIFIC BANKS, SECURITIES FIRMS & FINANCIAL MARKETS WITHOUT BRINGING CONGRESS & THE PUBLIC ON BOARD during the credit crisis.

The Fed “exercised enormous powers without Congress having boo to say about it, or the American people through their political system having anything to say about it,” Miller said.

The Republican criticism has come from the top. Last month, lawmakers including House Speaker John Boehner and Senate Minority Leader Mitch McConnell urged Bernanke in a letter to REFRAIN FROM FURTHER MONETARY STIMULUS, “particularly without a clear articulation of the goals of such a policy” and “ample data proving a case for economic action.” Americans, they said, “have reason to be skeptical” of his plans.

...At a Sept. 7 candidates’ debate, Romney said he would seek a new chairman because Bernanke “has overinflated the amount of currency that he’s created.” The Fed’s second round of so- called quantitative easing “DID NOT WORK, it did not get Americans back to work,” Romney said.

...“I do not recall there being a period of time when the Fed had fewer friends in Washington,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “The general public is not happy with what has gone on in Washington,” either.

Not since the Fed under Paul Volcker’s leadership raised interest rates to as high as 20 percent in 1980 and 1981 has a chairman been such a POLITICAL TARGET.

....In response to the dissents, Representative Barney Frank, the House Financial Services panel’s top Democrat, wants to curb the voting power of some Fed presidents. Frank said in a Sept. 12 memo published on the panel minority’s website that the Fed presidents had “BECOME A SIGNIFICANT CONSTRAINT ON NATIONAL ECONOMIC POLICY MAKING.” Frank has introduced legislation eliminating their role as voting members of the FOMC.

One reason Fed policy makers aren’t winning more popular support is they HAVEN'T FOLLOWED THEIR MOVES WITH DETAILED EXPLANATIONS OF HOW THEIR FORECASTS HAVE CHANGED OR WHAT THEY INTEND TO ACHIEVE, said Mark Calabria, director of financial- regulation studies at the libertarian Cato Institute in Washington.

“They haven’t laid out a game plan; they haven’t been consistent,” said Calabria, a former senior member of the Republican staff at the Senate Banking Committee. “It is not even clear that they thought through any of this in a very deep way.”

Before the August and September policy moves, the last economic outlook the public had from the FOMC was from June, when they were calling for growth this year of 2.5 percent to 3 percent -- about one percentage point higher than what economists are forecasting now.

An investor searching for a rationale for the two-year zero-rate pledge in August would come across this sentence in the meeting minutes: “While all felt that monetary policy could not completely address the various strains on the economy, most members thought that it could contribute importantly to better outcomes in terms of the committee’s dual mandate of maximum employment and price stability.”

To be sure, Bernanke now holds press conferences four times a year. He has also appeared before Congress 11 times this year. Still, the burden of explaining actions is higher with unconventional policies and intervention in specific segments of the economy, economists said.

“If you are doing something in the private sector that favors one sector against another, that is a political matter,” said Marvin Goodfriend, a former Richmond Fed policy adviser who is now a Carnegie Mellon University economist. “There is bound to be conflict with fiscal policy makers.”

==================

FIRE BERNANKE

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In a measure decried by Wall Street and trading companies as a misguided political attempt to cap soaring oil and grain prices, the Commodity Futures Trading Commission voted 3-2 to approve "position limits" that will cap the number of futures and swaps contracts that any single speculator can hold.

www.reuters.com/article/2011/10/18/us-financial-regulation-commodities-cftc-idUSTRE79H0P720111018

======================

Short selling & commodity speculation does not contribute to nominal gDp.