U.S. and World News
- Despite the fact that there was seemingly no new information released, a combination of details from the Federal Reserve meeting and Chairman Ben Bernanke’s post-meeting press conference sent markets into turmoil this week. Bernanke signaled that the Fed may soon start tapering down its current $85 billion in monthly asset purchases (likely cutting them to $65 billion) as soon as later this year should economic conditions (such as employment and inflation expectations) improve. He went on to say that purchases altogether could end in mid-2014 should those same measures strengthen. However, with the unemployment rate well above their stated goal of 6.5% (currently 7.6%) and the rate of inflation slowing, it will take significant improvement before we’re likely to see any sort of monetary tightening.
- St. Louis Fed chief Jim Bullard took issue with Bernanke’s comments laying out a plan for reducing QE, saying that it was “inappropriately timed.” Bullard (and many economists) wonders how the committee could permit the announcement of a less accommodative approach at the same time it was cutting its economic outlook for 2013. He stated, “Policy action should be undertaken to meet policy objectives, not calendar objectives.”
- In an interview this week, President Obama indicated that Fed Chairman Ben Bernanke’s time as the head of the Federal Reserve will be drawing to an end. Obama stated that Bernanke has already stayed in the position “a lot longer than he wanted or he was supposed to.” Bernanke’s second four-year term is due to end on January 31st.
- Brazilian President Dilma Rousseff has called an emergency cabinet meeting after two weeks of demonstrations culminated in over 1.25 million people marching in more than 100 cities of Brazil. The protestors are angry about a range of economic issues facing the country, including the huge sums of money spent on next year’s World Cup which will be held there.
- Stock markets ended the week down as the S&P 500 Index fell 2.1%, closing at 1,592. The Dow Jones Industrial Average was down 1.7% to close at 14,799. After this week’s decrease, the S&P and the Dow are respectively up 11.6% and 12.9% year to date.
- Treasury yields rose substantially this week as Ben Bernanke’s comments regarding the tapering of asset purchases have caused all areas of the bond market to sell off. The 5 year and 10 year treasury finished the week at 1.42% and 2.53% respectively. The 10 year treasury yield is at the highest level it has been at since August of 2011.
- The spot price of WTI Crude Oil fell this week, decreasing by 4.4%, closing at $93.69 per barrel. On the year, oil prices are only marginally lower.
- The spot price of Gold tumbled this week on fears about the possible scaling back of Fed asset purchases, plummeting by 7.1% and closing at $1291.60/ounce. Gold is down 22.9% for the year.
- Weekly Initial Jobless Claims rose this week as claims increased by 8,000 and came in higher than expected at 354,000 vs. consensus expectations of 340,000. The 4-week moving average of jobless claims moved up to 348,000.
- Headline Consumer Price Index rose only 0.1% in May vs. consensus expectations of 0.2%. Data such as this continues to indicate that inflation is low in the U.S. at the moment which would likely give the Fed more time to wait on improvement before it starts tapering asset purchases.
Fact of the Week
- There have been 12 official recessions in the United States since 1940. The most recent recession ended on 6/30/09. The 5.06 million jobs that have been gained in the country since 6/30/09 ranks #8 (out of the 12) in terms of jobs added nationally in the 47 months following the end of every recession since 1940. The best bounce back was the 12.41 million jobs added in the 47 months following the recession that ended in March 1975.
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