How Important Is The Word ‘Patience’ For The Fed?

Federal Reserve officials entered a self-imposed blackout on March 10th, in which they stopped making public comments about the economy and monetary policy.  They then engaged in intensifying discussions about the statement that will come out of their policy meeting this week, states the Wall Street Journal.

This Wednesday, the Federal Reserve will release the statement from its two-day Federal Open Market Committee (FOMC) meeting, and investors are keeping a sharp lookout for whether the word “patient” still appears in the statement.  The word “patient” is a key reference to when the Fed will begin hiking interest rates, states MarketWatch.

That one detail is crucial for how stocks fare this week.

The Wall Street Journal claims that it is clear that officials intend at the March 17-18 meeting to drop the “assurance” that they’ll be “patient” before raising short-term interest rates.

Cleveland Fed President Loretta Mester effectively gave her support for such a move in comments Monday, March 9th, saying she wanted to have the option to raise rates in June.  To have such an option, officials need to remove the word “patience” from their statement in March, states WSJ.

The Fed has received two signals in the last couple of weeks which reinforce its confidence about removing the “patience assurance,”  claims the WSJ.

First, Fed Chairwoman Janet Yellen signaled in her testimony to Congress an inclination to drop the word “patience,” and the market took the comments fine.  Officials had been worried that interest rates would jump and stocks tumble when they dropped the “patience assurance,” effectively bringing forward interest rate increases before the Fed is actually ready to raise rates. When the market didn’t respond, the Fed got a signal the coast is clear.

On Friday March 6th, the Labor Department reported another drop in the unemployment rate to 5.5%, meaning the economy is closer to a state of “full employment” when more people are employed and inflation bubbles up.

So incoming economic data are supporting the Fed’s forecast for the economy, another reason to take a small step in the long march move toward rate increases later this year.

“The biggest short term question with regard to the March FOMC (Federal Open Market Committee) is whether the committee chooses to include the ‘patient’ term in their policy statement or drop it,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, in a recent note.

LeBas believes the Fed will leave “patient” in its statement, signalling a rate hike closer to September than June.

“In terms of impact, retaining the word would imply a first rate hike would be most probable after June and by September 2015,” he said.

For quite a while, the consensus estimate had been that the Fed would start hiking rates in June, but analysts and economists are increasingly nudging the move out to September.

Greek PM Easily Wins Parliamentary Backing To Take On Brussels Over Bailout

According to sources, Germany and Greece are heading into an emergency meeting with official creditors today, setting the stage for a clash over Greek debt and Greece’s monetary union with the Eurozone.

The repercussions of a Greek exit and Eurozone break-up could be catastrophic for both the European and global economies.

German Finance Minister Wolfgang Schaeuble rejected Greece’s call for a new debt accord, while Greece’s new Prime Minister Alexis Tsipras remained defiant, saying there is “no way back” for his government, and that he can’t condemn his people to more pain.

“We will not get a clean close to this crisis today,” Michael O’Sullivan, chief investment officer for the U.K. and Europe, the Middle East and Africa at Credit Suisse Private Banking in London, said in an interview on Bloomberg Television. “I think this will drag on. The Greeks have digested a record amount of austerity, so they’ll want some relief from that.”

Any agreement would require an easing of Germany’s stance over conditions attached to Greece’s 240 billion-euro ($272 billion) bailout. A non-settlement risks leaving Greece without funding as of the end of this month, when its current bailout expires, and it may put Europe’s most-indebted state’s euro membership in danger.


How Did Uber Fill A Void In The Recessed Economy?

Uber is pioneering the “convenience economy” where instant gratification is the norm and is setting a precedent for other companies to follow.

Writer Leo Mirani has made the argument in Quartz that the on-demand economy is flawed since it’s actually built on income inequality.

Is this model merely a rerun of the oldest sort of business? Gabriel Mizrahi and Jackie Koppell look at arguments for and against Uber.

Video by The Lip TV.

Economy: We’re #2 ?

IMF Headquarters 1 in Washington D.C.

According to MarketWatch, the Chinese economy just overtook the United States economy to become the largest in the world. “For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet,” states MarketWatch.

The International Monetary Fund (IMF) released the latest numbers for the world economy. When you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A.

To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.

China’s recent decision to bring gross domestic product calculations in line with international standards has revealed activity that had previously gone uncounted.

As recently as 2000, the U.S. produced nearly three times as much as the Chinese.

The calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates. So a Starbucks venti Frappucino (or a Big Mac) served in Beijing counts the same as one served in Minneapolis, regardless of what happens to be going on among foreign-exchange traders.

PPP is the “real” way of comparing economies: it is “exchange-rate-adjusted.” It is the one reported by the IMF and was, for example, the one used by McKinsey & Co. consultants back in the 1990s when they undertook a study of economic productivity on behalf of the British government.

When you exclude the PPP, the U.S. economy remains allegedly almost 70% bigger than that of China.

But many economists or financial institutions consider such measures largely meaningless. Does the U.S. economy really shrink if the dollar falls 10% on international currency markets? Does the recent plunge in the yen mean the Japanese economy is vanishing?

Back in 2012, the IMF tried to challenge the importance of PPP, for reasons of ideology.  It is not in anyone’s interest at the IMF that people in the Western world start focusing too much on the sheer extent of China’s power.

However, when the IMF’s official World Economic Outlook compares countries by their share of world output, it does so using PPP.

All statistics are open to possible dispute. It is possible China’s latest numbers overstate output — or understate them. That may also be true of U.S. GDP figures. But according to MarketWatch, the IMF data are “the best we have.”

This will not change anything in the short term, but it will change much in the long term.

We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century.  However, throughout history, political and military power have always depended on economic power.


Again? Oklahoma Wal-Mart Asks For Food Donations For Employees

An Oklahoma City Wal-Mart is asking employees to donate food to help their coworkers for the holidays, according to a photo posted by the labor-backed coalition Making Change At Wal-Mart.

A sign on the collection bin reads, “Let’s succeed by donating to associates in need!!!”

The company drew criticism for similar employee food drives a year ago. At that time, a spokesman characterized the efforts as “part of the company’s culture to rally around associates and take care of them when they face extreme hardships.”

David Pakman video.

MSNBC: Why Are Gas Prices So Low In The U.S.?

Global forces are driving down prices at the pump, and it’s expected to save U.S. consumers billions of dollars over the next year.  Chris Hayes looks at the different reasons why gas prices are low.

MSNBC video.

Kyle Kulinski On The Rise Of Neo-Fascism In Europe

Kyle Kulinski discusses an article by Alter Net that discusses the rise of Neo-Fascism in Europe.
A Secular Talk video.

Video from 2013.

Russell Brand On The State Of The Economy

Russell Brand talks with Dave DeGraw, one of the of the pioneers of the Occupy movement.

Brand and DeGraw discuss the economy, employment, and the fast-food workers in the U.S. who have been demanding a $15 hourly wage and union rights.