The big news is that Janet Yellen is set to be tapped by President Barack Obama to replace Donald Kohn as the Fed’s second in command. But two other seats are still open, and it looks like Mr Obama may, after 14 months of silence on the open seats, be set to announce his nominations.
Sarah Raskin, the top banking regulator for the state of Maryland, and Peter Diamond, a Massachusetts Institute of Technology economist, are also under consideration for Fed board vacancies, the official said.
Sarah Bloom Raskin, official bio: Read more
Analyst reaction to reports Janet Yellen may be tapped to be Fed Vice Chairman:
Outside of Boston Fed’s Rosengren and Fed Chief Bernanke himself, Yellen is one of the most dovish members on the FOMC and this would certainly raise her status as a permanent voter. Yellen has done a past stint as a governor at the Fed and returned to the SF Fed after a period as a professor of economics at U.C. Berkeley, and is very well-versed on the inner workings of the Fed.
On Janet Yellen potentially becoming vice chairman of the Federal Reserve
For Friday fun
William C Dudly, president of the NY Fed, today outlined his concerns with the direction of financial regulatory reform. His three-fold concerns (in brief).
- There is no global consensus on regulatory reform. The problem, he says, is that “without harmonized standards, financial intermediation would inevitably move toward geographies and activities where the standards are more lax.” He recommended “a long phase-in period in the transition to ” new standards. “The focus should be more on the side of all ending up in the same place, rather than on the relative degree of difficulty in getting there.”
If ever there was a night to give fodder to critics of central bank politicisation, it was last evening.
South Korea maintained its interest rate at 2 per cent, after pressure from the government on outgoing central bank president Lee Seong-tae.
Then the Argentine Senate failed to achieve quorum today to debate the appointment of the new president of the Bank of Argentina. Read more
Fiscal woes are here to stay. Decades of discipline on public finances will be needed to bring eurozone public sector debt back within the European Union’s rules, the European Central Bank has warned.
As if determined to keep up the pressure on governments, the ECB latest monthly bulletin sets out scenarios for the debt-to-GDP ratio, according to appetites for cutting spending and/or raising taxes. Only on the boldest scenario, in which the “primary balance” (excluding interest payments) improves by one percentage point of GDP a year until 2018, does the ratio return below the 60 per cent limit within two decades. If no consolidation efforts are made, the ratio rises from 84 per cent this year to 150 per cent by 2026. Its assumptions may prove wrong, the ECB concludes, but the results “illustrate the increased risks to fiscal sustainability in the euro area”.
Gloomy stuff, but there could be some quick wins. Read more
By Jude Webber in Argentina
After more than two months of legal and congressional battling, Argentine President Cristina Fernández on Monday unveiled a new bid to tap central bank reserves to pay off debts. Read more
Day two of Ben Bernanke’s semiannual monetary policy report to the Congress is proving a bit more eventful than the relatively news-free day one.
The day started with the revelation that the Fed is looking into whether Goldman Sachs helped Greece cover up the extent of its budgetary problems by using derivatives. “We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece,” Mr Bernanke told the Senate banking committee. At the end of the hearing, the Fed chairman said that any arrangements may have been made a decade ago.
After starting the second and final day with a bang, Mr Bernanke faced another generally civil, but occassionally less friendly set of questions than he had before the the House financial services committee yesterday. The Senate recently confirmed the Fed chairman for a second term, albeit not without difficulty, and some of the Senators are looking to make clear that they are still sceptical of his chairmanship.
Here are some highlights: Read more
Analysts agree that Ben Bernanke’s prepared testimony ahead of the House Financial Services Committee this morning was largely uneventful.
“You know Bernanke did not say very much, when there is an active debate as to whether weak new home sales or Bernanke’s testimony was moving markets more. Oddly the home sales data may have even won that contest,” wrote Alan Ruskin, chief international strategist at RBS.
So what hasn’t changed?
The Federal funds rate, as Mr Bernanke and everyone else at the Fed have stated repeatedly, is likely to remain low for an ‘extended period’, even after the discount rate – the rate at which banks borrow money directly from the Fed – rose by 25bp last week.
But his testimony to Congress wasn’t limited to his written statement. Among his comments during the question and answer period:
- Bernanke on the cost of interest rates on reserves: Unless I’m mistaken, this is the first time Mr Bernanke has addressed the cost of paying interest on bank reserves. He has said previously that it will likely be the most important means of tightening monetary policy when it’s time to begin tightening, but not estimated its cost. In the hearing, he said the cost would be ‘within tens of basis points’ of increasing the federal funds rate. “[It's] not a tremendous difference.”
That other real estate market came back into the spotlight today as Chris Dodd, chairman of the Senate Banking Committee sent letters to a number of regulators, including the Federal Reserve, asking them to report on their efforts to stabilise the commercial real estate market.
By any realistic estimate, CRE has yet to finish wreaking havoc on the economy. Nearly half of CRE loans are currently “underwater” and the largest loan losses haven’t yet occurred, according to the Congressional Oversight Panel. Read more
Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, today warned (again) of the risks of increased political oversight of the Fed and (again) suggested that the Fed should give up some of its emergency powers in order to maintain its independence.
Specifically, Mr Plosser called for the Fed’s balance sheet to contain only Treasury securities (rather than MBS backed by GSEs) and for it’s ‘unusual and exigent’ lending authority to be either ‘eliminated or severely curtailed.’
Like Ulysses and the Sirens, the Fed could help preserve its independence by limiting the scope of its ability to engage in activities that blur the boundary lines between monetary and fiscal policy.
It’s not a new argument, but it’s an interesting one. Read more
I called the end too soon. The Argentine central bank fiasco has clearly outlived Martín Redrado stepping aside. In an unexpected twist, a presidential ally was chosen to head the country’s central bank.
From tomorrow’s paper… Read more