Politics: Daily Briefing: Fed goes all out on quantitative easing

Published by: Clark Barrow on Friday September 14th, 2012

Clark Barrow

By CLARK BARROW - Bernanke announce plans to purchase assets without limits.

DAILY BRIEFING - SUMMARY

· FEDERAL RESERVE - The U.S. Federal Reserve on Thursday said it would launch a major new round of bond buying, extending the unconventional actions the central bank has unleashed since the financial crisis to support the precarious economic recovery.

· CONGRESS – The U.S. House passed a giant, six-month continuing resolution on Thursday that will keep the government running until late March 2013.

· WHITE HOUSE - With anti-U.S. protests spreading in the Arab world, President Obama says the U.S. would not consider Egypt an ally, or an enemy. Meanwhile, the U.S. State Department corrected President Obama by clarifying that Egypt is still legally considered a major non-NATO ally.

· ATTACK - Hundreds of protests continued around the world on Thursday, with demonstrations in Israel, Yemen, Egypt, Iran, Iraq, Lebanon, Oman, Tunisia, Sudan, and Morocco. American missions have been attacked in three Arab nations— Yemen, Egypt and Libya.

o Meanwhile, Libyan officials said the investigation continues after four people were arrested in connection with the attack against the American consulate in Benghazi, Libya.

· THREAT - The U.S. State Department had credible information 48 hours before mobs charged the consulate in Benghazi, Libya and the embassy in Cairo, Egypt that American missions may be targeted, but no warnings were given for diplomats to go on high alert.

o Meanwhile, U.S. officials said they are increasingly convinced the assault was planned due to its extensive nature and the proliferation of weapons. U.S. officials believe the attack was in revenge for the recent killing of an al-Qaeda leader by the U.S.

· OBAMACARE - The owner of a Kentucky Fried Chicken franchise recently detailed how Obamacare federal regulations will cut his company’s profits in half overnight once the law is fully implemented.

WHAT WE KNOW

ECONOMIC NEWS

· FEDERAL RESERVE - The U.S. Federal Reserve on Thursday said it would launch a major new round of bond buying, extending the unconventional actions the central bank has unleashed since the financial crisis to support the precarious economic recovery.

o Under the new action, known as the third round of quantitative easing or QE3, the Fed will purchase $40 billion per month in additional agency mortgage-backed securities. This program is open-ended and the Fed said it could extend those purchases and buy additional assets if the job market doesn't improve.

o The Fed's purchases are aimed at pushing down long-term interest rates—especially mortgage rates—and pushing up the values of assets like stocks and homes. The Fed hopes that financial stimulus will boost the beleaguered housing market and spur broader spending and investment.

o Also, open-ended QE gives the Fed the ability to ramp up purchases as the U.S. moves closer to the fiscal cliff. Fed policymakers pledged they will adjust its asset purchases and utilize other tools until there is a “substantial” improvement in the job market.

o The Fed also said it would continue a program known as Operation Twist, under which the central bank has been selling short-term bonds and using the proceeds to buy longer-term bonds in an effort to bring down long-term rates. Taken together, the Fed will be purchasing $85 billion of longer-term securities a month through the end of the year, an increase from the $45 billion of long-term bonds it is currently buying each month under Operation Twist. It will also be printing more money to fund its mortgage-bond purchases, expanding the size of its $2.8 trillion balance sheet.

o The Fed changed its pledge to keep interest rates “exceptionally low” to mid-2015. central bankers predict that the first interest-rate increase for the Fed will occur in 2015, with 12 of 19 officials preferring 2015 as the time to start tightening policy. One central banker expected the Fed to first raise rates in 2016, and one saw the first rate hike happening this year.

o The Fed's central tendency forecast for 2012 unemployment was unchanged compared with June's forecast of 8% to 8.2%. The new forecast for 2013 stands at a jobless rate of 7.6% to 7.9%, from June's 7.5% to 8% range. The new forecast for 2014 expects unemployment between 6.7% and 7.3%, while 2015 is seen between 6.0% and 6.8%.

· SLOWDOWN - Most major economies will continue to slow in the coming months, with only Brazil and the U.K. set to experience a moderate pickup, according to the Organization for Economic Cooperation and Development's composite leading indicators.

o The indicators, which have proved reliable in the past, suggest that it will be some months before global economic growth begins to recover, and they make further central-bank action to support activity more likely.

o Among developed economies, the main locus of weakness remains the euro zone, where the economic contraction that began in the second quarter appears set to continue. But the leading indicators for both the U.S. and Japan also fell and "show signs of moderating growth," the OECD said.

· INFLATION - U.S. wholesale prices in August rose by the largest amount in more than three years after a late-summer resurgence in the price of oil, according to the latest government data.

o The producer-price index rose a seasonally adjusted 1.7% last month, the U.S. Labor Department said Thursday. That’s the biggest increase since June 2009.

o The advance in wholesale costs stemmed from a spike in the price of gasoline and natural gas. The wholesale cost of gasoline rose by 13.6% while natural gas climbed 11.9% — both three-year highs.

· The Dow Jones Industrial Average rose 206.51 points, or 1.6%, to 13,539.86.

· The S&P 500 index added 23.43 points, or 1.6%, to 1,459.99.

· The Nasdaq Composite climbed 41.52 points, or 1.3%, to 3,155.83.

COMMODITIES

· The U.S. national average for a gallon of regular gasoline is $3.87.

o When President Obama was inaugurated, in January 2009, the U.S. national average for a gallon of regular gasoline was $1.85. Average gasoline prices are currently 109 percent higher than they were when Mr. Obama became president.

· Crude for October delivery advanced $1.30, or 1.3%, to end at $98.31 a barrel on the New York Mercantile Exchange.

· Gold for December delivery rose $38.40, or 2.2%, to settle at $1,772.10 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

· ELECTION - As of today, there are 53 days until the November 2012 presidential election.

· CONGRESS - The U.S. House approved legislation on Thursday that would make it a crime to lie about one's military service if those lies result in a financial benefit.

o The Stolen Valor Act, H.R. 1775, was approved in a 410-3 vote. It was only opposed by just two Republicans and one Democrat.

o The bill is a response to this year's Supreme Court decision that struck down the first version of the Stolen Valor Act, which was passed in 2006. In June, the Court ruled that making it a crime to lie about military service violates the First Amendment, although the court did indicated that the law could be tweaked to make it constitutional.

· CONGRESS - U.S. House Republicans and Democrats spent an hour blaming each other for Congress's failure to complete its work on 2013 spending bills this year, then held their noses and passed a giant, six-month continuing resolution that will keep the government running until late March.

o Members easily approved the spending resolution early Thursday evening in a 329-91 vote that saw 70 Republicans vote against it, along with 21 Democrats. Dozens of Republicans were expected to vote against it as a reflection of their complaint that it does not cut enough.

o The resolution puts the government on a pace to spend $1.047 trillion in discretionary spending in 2013, the same level agreed to in last year's Budget Control Act (BCA). Over the summer, the GOP House approved seven appropriations bills for 2013, many of which spent less than what was allowed under the BCA.

o The U.S. Senate is expected to approve the continuing resolution quickly, perhaps as early as this week. Current funding for the government expires at the end of the fiscal year, September 30.

· WHITE HOUSE - With anti-U.S. protests spreading in the Arab world, President Obama says the U.S. would not consider Egypt an ally, “but we don’t consider them an enemy.”

o Obama said in an interview with the Spanish-language network Telemundo that Egypt is a “new government that is trying to find its way.” And he warned that if the Egyptian government takes actions showing “they’re not taking responsibility,” then it would “be a real big problem.”

o Meanwhile, the U.S. State Department corrected President Obama by clarifying that Egypt is still legally considered a major non-NATO ally. U.S. State Department officials and White House aides tried to at the same time suggest that Obama was referring to the fact that Egypt is not part of any formal NATO treaty.

o The White House is flatly rejecting calls from House conservatives to halt U.S. aid to Egypt after a slow response from Cairo in rebuking violent attacks on the U.S. Embassy there Tuesday night.

o A group of U.S. House conservatives, led by freshman Rep. Jeffrey M. Landry, Louisiana Republican, is calling for foreign aid to both Libya and Egypt to be stripped from a six-month federal funding bill up for a vote Thursday.

o Egypt is second only to Israel in the amount of assistance it receives from the U.S., an estimated $2 billion a year, but the White House has no plans to curtail its investment there.

PRESIDENT’S SCHEDULE

· In the morning, President Obama will receive the Presidential Daily Briefing at the White House.

· Later in the morning, the president will welcome the 2012 U.S. Olympic and Paralympic teams to the White House.

· In the afternoon, the president will have lunch with the Vice President Biden at the White House.

· In the evening, the president will attend a campaign event at a private residence in Washington, D.C.

HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

· The U.S. Senate is not in session today.

U.S. HOUSE OF REPRESENTATIVES

· The U.S. House is in session today.

TOPICS OF INTEREST

NATIONAL SECURITY

· ATTACK - Hundreds of protests continued around the world on Thursday, with demonstrations in Israel, Yemen, Egypt, Iran, Iraq, Lebanon, Oman, Tunisia, Sudan, and Morocco.

o A Joint Intelligence Bulletin issued by the FBI and the U.S. Department of Homeland Security said the risk of violence could increase both at home and abroad as the film continues to gain attention. U.S. embassies in at least seven countries in the Middle East, Africa and the Caucuses are warning of possible anti-American protests following an attack on the consulate in Benghazi, Libya. American missions have been attacked in three Arab nations— Yemen, Egypt and Libya.

o The following material details the turbulent events around the world on Thursday:

§ LIBYA – Libyan officials said four people have been arrested in connection with the attack against the American consulate that resulted in the death of the U.S. ambassador to Libya and three other Americans. The Libyans have organized a multiagency task force, combining all available resources to hunt down the suspected Islamic militants, including intelligence, defense and interior officials.

§ EGYPT - In Cairo on Thursday, hundreds of Egyptian police in riot gear beat back crowds of young men from a street filled with tear gas outside the U.S. Embassy, injuring 16 people, as protests that began there Tuesday roiled on.

§ YEMEN - In Yemen, hundreds of young men breached the outer security rings of the fortified U.S. Embassy, battering a guard post with pick axes and setting vehicles aflame. Four protesters died Thursday during clashes with security forces outside the U.S. Embassy.

§ IRAN - In Iran, the Fars news agency said students gathered Thursday outside the Swiss Embassy, which represents U.S. interests in Iran, to protest the video. No violence was reported.

§ IRAQ - An Iraqi militia that carried out some of the most prominent attacks on foreigners during the Iraq war on Thursday threatened U.S. interests in Iraq. Protests against the film erupted in Baghdad on Thursday and in the city of Basra, Iraq. Hundreds of followers of anti-U.S. Shi'ite cleric Moqtada al-Sadr took to the streets calling on the Iraqi government to close the U.S. embassy.

· THREAT - According to senior diplomatic sources, the U.S. State Department had credible information 48 hours before mobs charged the consulate in Benghazi, Libya and the embassy in Cairo, Egypt that American missions may be targeted, but no warnings were given for diplomats to go on high alert and "lockdown", under which movement is severely restricted.

o The U.S. administration is now facing a crisis in Libya. Sensitive documents have gone missing from the consulate in Benghazi and the supposedly secret location of the "safe house" in the city, where the staff had retreated, came under sustained mortar attack. Other such refuges across the country are no longer deemed "safe".

o Some of the missing papers from the consulate are said to list names of Libyans who are working with Americans, putting them potentially at risk from extremist groups, while some of the other documents are said to relate to oil contracts.

o Senior officials are increasingly convinced, however, that the ferocious nature of the Benghazi attack, in which rocket-propelled grenades were used, indicated it was not the result of spontaneous anger due to the video, called Innocence of Muslims. Patrick Kennedy, Under-Secretary at the U.S. State Department, said he was convinced the assault was planned due to its extensive nature and the proliferation of weapons.

o There is growing belief that the attack was in revenge for the killing in a drone strike in Pakistan of Mohammed Hassan Qaed, an al-Qa'ida operative who was, as his nom-de-guerre Abu Yahya al-Libi suggests, from Libya, and timed for the anniversary of the 11 September attacks.

· FILM - Federal authorities have identified a Coptic Christian in southern California who is on probation after his conviction for financial crimes as the key figure behind the anti-Muslim film that ignited mob violence against U.S. embassies across the Mideast, a U.S. law enforcement official told The Associated Press on Thursday.

o The official said authorities had concluded that Nakoula Basseley Nakoula, 55, was behind "Innocence of Muslims," a film that denigrated Islam and the prophet Muhammad and sparked protests earlier this week in Egypt, Libya and most recently in Yemen. It was not immediately clear whether Nakoula was the target of a criminal investigation or part of the broader investigation into the deaths of U.S. Ambassador Chris Stevens and three other Americans in Libya during a terrorist attack.

o U.S. Attorney General Eric Holder confirmed Thursday that Justice Department officials were investigating the deaths, which occurred during an attack on the American mission in Benghazi.

FEDERAL GOVERNMENT

· DEFICIT - The U.S. federal budget deficit increased by $191 billion in August and has topped $1 trillion for the fourth straight year.

o The deficit for the first 11 months of the 2012 budget year totaled $1.16 trillion, the U.S. Treasury Department said Thursday. That's 6 percent less than the $1.23 trillion in the same period last year. The fiscal year ends Sept. 30. One reason for the improvement: Income tax receipts are up as the economy improves slowly.

o Still, the report highlights a political vulnerability for President Barack Obama: He will seek reelection after running trillion-dollar deficits each year in office. Republican presidential candidate Mitt Romney has criticized Obama for failing to cut the deficit in half, as Obama pledged to do in early 2009.

· SOCIAL SECURITY - By the end of August, according to data released Thursday by the U.S. Treasury, the federal government had already paid out record annual amounts in both Social Security and disability benefits during fiscal 2012—even though there was still a month left in the year.

o In fiscal 2011--which ended on Sept. 30, 2011—the federal government paid a total of $591.492 billion in benefits from the Old Age and Survivors Insurance Trust Fund, according to the Monthly Treasury Statement (MTS) for September 2011.

o Through just the end of August of this year, according to the MTS, the federal government had paid $594.643 in benefits from the Old Age and Survivors Insurance Trust Fund. That means the government had paid $3.151 billion more in Social Security benefits in just the first eleven months of this fiscal year than it paid in all of fiscal 2011.

HEALTH CARE

· OBAMACARE - The International Franchise Association held a convention in Washington, D.C. this week where most of the Radio Shack, Dunkin Donuts, Curves and other franchisers were grumbling about new federal regulations, especially the impact of Obamacare.

o At the convention, Atlanta Taco Bell and Kentucky Fried Chicken franchiser David Barr detailed how Obamacare will cut his--and likely their--profits in half overnight. With simple math the small business folks understood, he spelled out that their only choice is to slash employee hours so they aren't eligible for company-paid health care or stop offering insurance and pay the $2,000 per employee fine.

o Barr has 23 stores with 421 employees, 109 of whom are full-time. Of those, he provides 30 with health insurance. Barr said he pays 81 percent of their Blue Cross Blue Shield policy, or $4,073 of $5,028 for individuals, more for families, for a total bill of $129,000 a year. Employees pay $995. Under Obamacare, however, he will have to provide health insurance for all 109 full-time workers, a cost of $444,000, or two and half times more than his current costs. That $315,000 increase is equal to just over half his annual profit, after expenses, or 1.5 percent of sales.

o Providing no insurance would result in a federal fine of $158,000, $29,000 more than he now spends but the lowest cost possible under the Obamacare law. So he now views that as his cap and he'll either cut worker hours or replace them with machines to get his costs down or dump them on the public health exchange and pay the fine.

DOMESTIC ISSUES

LOCAL ISSUES

· NEW YORK CITY - The New York City Board of Health approved Mayor Michael Bloomberg's ban on large sugar-sweetened drinks Thursday, as expected. Eight of the board's nine members voted in favor of the ban; one, Dr. Sixto R. Caro, abstained.

o The plan, proposed by the mayor in May, calls for a ban on the sale of all sugar-sweetened beverages—soda, sports drinks, energy drinks, sweetened teas, coffees and fruit drinks—in cups larger than 16 ounces at the city's restaurants, food carts, fast-food joints, movie theaters, stadiums and sports arenas. The Barclays Center, the new arena for the Brooklyn Nets opening next week, will comply with Bloomberg's ban, its developer, Bruce Ratner, said Thursday.

o The new policy covers any beverage that contains more than 25 calories per 8 ounces--but does not include diet sodas, soft drinks sold in grocery stores and in most convenient stores or those that contain 70 percent or more fruit juice. Beer is also not included in the ban.

FOREIGN POLICY

MIDDLE EAST

· SYRIA - The latest in a flurry of messages from al Qaeda leader Ayman al Zawahiri shows his growing interest in exploiting violence in Syria. In a 35-minute audio address posted on jihadist forums on Wednesday, Zawahiri claimed the United States was actually supporting the Assad regime to prevent an Islamist state from taking its place.

o He appealed to foreign fighters to converge on Syria, urging "every Muslim and every free honorable one in Turkey, Iraq, Jordan, and Lebanon, to rise to help his brothers in Syria with all what he can," according to a translation by the SITE Monitoring Service.

o Zawahiri's vision is, however, still a long way from fruition. To date, there are probably at most a few hundred committed al Qaeda fighters in Syria, a small fraction of the tens of thousands who have joined rebel ranks. U.S. officials have downplayed al Qaeda's presence in the country.

· IRAN - The United Nations atomic agency's board approved with a crushing majority Thursday a resolution brought by world powers criticizing Iran.

o The resolution expresses "serious concern that Iran continues to defy" U.N. Security Council resolutions for it to suspend uranium enrichment, a process which can be used for peaceful purposes but also in a nuclear weapon.

o It also highlights the International Atomic Energy Agency's complaint that activities at the Parchin base near Tehran, where it suspects nuclear weapons research took place, would "significantly hamper" inspectors--should Iran let them visit.

AFRICA

· EGYPT - Egypt’s Islamist President Mohammed Morsi condemned the attack on Libya that killed the American ambassador and vowed Thursday to protect foreign embassies in Cairo, where police were using tear gas to disperse protesters at the U.S. mission.

o Speaking during a visit to the European Union in Brussels, Morsi said he had spoken to President Obama and condemned “in the clearest terms” the Tuesday attacks on the U.S. consulate in Benghazi that killed the ambassador and three other Americans.

o He also harshly criticized the movie, which came to attention in Egypt after its trailer was dubbed into Arabic and posted on YouTube.

EUROPE

· EURO-ZONE - Euro-zone finance ministers Friday indicated they may consider giving Greece more time to meet its budget goals but ruled out additional aid for the country, while urging Spain to come clean on its overall financing needs.

o In their first gathering after a long summer hiatus, finance ministers from the 17-member currency bloc are expected to discuss a raft of issues as part of two-day informal talks on bailout programs for Greece, Spain and other fiscally frail nations. They will be later joined by the 10 ministers from the rest of the European Union to debate proposals for a system of common banking supervision released earlier this week.

o The meeting comes days after the European Central Bank announced a revamped plan for purchases of government bonds in the open market in coordination with the euro zone's rescue funds, and follows a German constitutional court ruling clearing the way for the launch of the European Stability Mechanism, the permanent bailout fund.