Fed Signals Growth Return Insufficient to End Monetary Stimulus

By Scott Lanman

Sept. 24 (Bloomberg) -- The Federal Reserve signaled that the U.S. economy’s return to growth is insufficient to withdraw stimulus as officials seek to reduce the highest unemployment rate in a quarter century.

While the economy has “picked up,” the central bank’s planned asset purchases will help ensure a “gradual return to higher levels of resource utilization,” the Fed’s Open Market Committee said yesterday. Policy makers committed to complete their $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December.

“They’re going to be in that accommodative phase for a while,” said Vincent Reinhart, a former Fed monetary-affairs director who’s now a resident scholar at the American Enterprise Institute in Washington. The Fed’s “tactical goal isn’t just to get to the rate of growth of potential,” he said. “It’s to work down the level of slack.”

The FOMC statement, while offering the most favorable economic outlook since Lehman Brothers Holdings Inc. failed a year ago, means Chairman Ben S. Bernanke may delay raising interest rates and shrinking the Fed’s $2.1 trillion balance sheet until he secures a recovery.

Policy makers, as part of a unanimous decision, kept the main interest rate in a range of zero to 0.25 percent and reiterated that rates will stay low for an “extended period.”

The central bank pledged to purchase “a total of” $1.25 trillion of mortgage debt, changing prior language saying it will buy “up to” that amount.

Traders yesterday marked down expectations for Fed interest-rate increases next year, based on futures contracts on the Chicago Board of Trade.

Stocks, Treasuries

Treasuries rose yesterday, pushing the yield on the benchmark 10-year note down three basis points to 3.42 percent in New York, according to BGCantor Market Data. The Standard & Poor’s 500 Index lost 10.79, or 1 percent, to 1060.87, paring its gain this year to 17 percent.

The FOMC said the economy showed signs of “substantial resource slack.” The unemployment rate rose to 9.7 percent last month, the highest since June 1983, when it reached 10.1 percent. Employers eliminated 216,000 jobs in August, the 20th straight month of losses, and the Fed acknowledged yesterday that businesses are “still cutting back on fixed investment and staffing, though at a slower pace.”

Capacity utilization, the proportion of industrial volume in use, rose in August to 69.6 percent from 68.3 percent in June, its lowest level since record-keeping began in 1967. The figure averaged about 81 percent from 2005 to 2007.

‘Cost Pressures’

“Slack is important to their thinking about inflation and inflation expectations,” said Mark Spindel, chief investment officer at Potomac River Capital LLC in Washington, a hedge fund with about $100 million under management.

“They are sending a clear message that rates will stay low for longer,” said Spindel, a former deputy treasurer at the World Bank’s International Finance Corp.

The weakness in the economy is “likely to continue to dampen cost pressures” and keep inflation “subdued for some time,” policy makers said yesterday. Public expectations for price trends are “stable,” they said.

At the same time, housing market has started to stabilize. Home prices rose 0.3 percent in July from the previous month, the Federal Housing Finance Agency said this week. Housing starts rose in August to the highest level in nine months.

“Activity in the housing sector has increased,” the central bank said.

‘More Optimistic’

“They have gotten progressively more optimistic over the last several statements, and this is the most optimistic since the financial crisis intensified last September,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.

“The economic data will be improving quite sharply over the next few quarters,” said Maki, a former Fed researcher.

Yesterday’s affirmation that the Fed would buy the full amount of mortgage backed securities eased concerns that any reduction of the program might undermine a recovery in the housing market. The Fed’s purchases of the securities have pushed down mortgage rates, helping spur demand for homes.

“They probably recognize exiting is much more difficult than entering into the program,” said Torsten Slok, senior economist at Deutsche Bank AG in New York. “They’re very worried about what the reaction will be when it fades, so they’re pushing it into 2010,” he said. “For now, that’s pushed the problem ahead of them.”

The average rate on a 30-year mortgage dropped to 5.04 percent in the week ending Sept. 17 from 5.07 percent the week before, according to mortgage buyer Freddie Mac.

The Fed has announced $861.9 billion of mortgage-backed securities purchases and completed $685.1 billion. It’s bought $125.2 billion of agency debt and $289.2 billion of the planned purchases of $300 billion in Treasuries, which will end next month.

The tapering in housing debt purchases will begin today, the New York Fed said in a separate statement after the meeting.

[Source: http://www.bloomberg.com/apps/news?pid=20601103&sid=a7PUzPYyvn7M ]

Lord Sun defeats Rahu after being eaten

[This article was composed on July 22, 2009, But could not be published due to internet issues]

Well, had we been living in the age old era, the headlines of the newspapers would have been similar to the one above. But, this is not the truer side of the story. Yes, I am talking about one of the rare celestial phenomena which occurred today. I am talking about the solar eclipse.

Since past few days a lot of things were being discussed and written in news channels and print dailies. The astronomers predicted that this is going to be the longest duration total eclipse of the century, with the totality lasting up to 6 minutes and 44 seconds. The next eclipse which will pass this duration will occur in 2134. Therefore this event was a must watch as it was a once in a life time opportunity.A number of channels had organized a discussion on the causes and effects of eclipse, involving scientists and astrologers. While, astrologers believe that such celestial incidents have positive and negative effects on life of individuals and may even bring severe calamities. However scientists obviously denied the claim as there is no direct scientific evidence for the same. However, there are a number of astrologers (Jyotishi) who advice people of the ill effects of the phenomena. Generally, people are advised not to be asleep and eat anything during the period of eclipse. Pregnent women are advised to stay indoors and not to see the eclipse. They prescribe various pujas and other instruments to ward off evil spirits. A news channel aired a senior Jyotishacharya, who rubbished such claims and prescriptions as being made by (Ponga pundits) and said that these people do not really have knowledge of Jyotish and are misguiding people because they want them to be there customers.

Reasons for occurrences:
Scientific reason: Earth rotates around sun and moon rotates around moon. Sun's light illuminates both earth and moon. However when all three comes in a straight line, with moon being in between sun and earth, the moon blocks rays of sun and prevents them in reaching to earth. This is what we call eclipse.
Mythological reason: This is a bit interesting. According to Hindu mythology, Gods and demons were involved in Sagar Manthan (Sea churning), when a pot filled with nectar came out every body started fighting for drinking it, as one who drinks it would become immortal. Lord Vishnu thought that demons cause trouble to everyone, and if they become immortal, they will cause destruction of the world. So, he took the form of a beautiful woman and said everyone that everyone should sit in a que and then she will distribute it. However, Lord Vishnu served nectar only to Gods. Sensing the cheating a demon named Rahu-Ketu changed into dress of Gods and sat among them, and had the nectar. However soon Lord Sun and Moon identified, because of which Rahu-Ketu started running. Then Lord Vishnu cut his head using his Sudarshana Chakra. Thus the head was called Rahu and the remaining part as Ketu, the same is believed to be eating Sun and Moon every now and then because of his animosity with two deities.

The total eclipse was to be seen at a strip passing covering Gujarat, Madhya Pradesh, Parts of UP, Bihar, and north east in India. the remaining parts of India were to see the partial eclipse. Excited by a lot of media attention, I had also prepared myself to watch the eclipse in the morning. I took out my camera and charged the battery so that I may be able to take the picture. The timing of eclipse was from 5:21 AM to 7:30 AM.My room mate set an alarm of 5:15 AM. in the morning both of us got up together just to find out that the alarm had not went off as expected, but we had not lost much time as it was only 5:45 AM. Unfortunately, Hyderabad had been witnessing rains for past few days, and the weather was heavily clouded, so we had no chance to see the eclipse. Then we switched on TV, to enjoy at least there. First news. Surat which was supposed to be the first city to witness it was raining. Then news came in that there are clouds in almost all of Gujarat, MP, UP and Bihar. Then news came that Bhopal is also raining. Luckily in Varanasi the eclipse was visible as the cluods were very thin there. A small village in Bihar, Taregna was the center of all news till today morning as NASA had declared it the best spot to view the eclipse, however the clouds spoiled the party here too. A host of VIPs including state chief minister, MLAs, scientists, media person had camped here just to be disappointed.

The TV showed total eclipse at three locations, Varanasi, Tawang and a place in China. At approximately 6:21 AM, the moon covered the sun completely and all of a sudden Varanasi witnessed complete dark for about 4 minutes. In the end there was a beautiful diamond ring. Though the eclipse in Tawang (Arunachal Pradesh) and China were clear, but they were not as spectacular as at Varanasi. Other places in Central and Western India could not see the eclipse, because of cloud cover, but these places also witnessed the complete dark during the period of total eclipse.

I have downloaded a few photographs of today's total solar eclipse at Varanasi from the internet (Source: TimesofIndia.Com), which I am showing here.

The end of second season of DLF IPL

Well, this was what happened when the DLF IPL's second season came to and end in South Africa yesterday night. In the nail biting final match the Deccan Chargers beat Royal Challengers by 6 runs. It was followed by firework shows not only the official one in South Africa but also unofficially by a number of fans in Hyderabad. The first I witnessed on TV courtesy Sony Max and the later live in Hyderabad itself.

Well I have been supporting the Team Hyderabad right from the start of the first season, but unfortunately it lost most of its matches in the first season to finish at the last spot. The first season was also not very good for this year's runner up RC, who finished at 7th spot last year just a place better than the Hyderabad.

This year IPL was moved to South Africa, because of security issues due to the general elections in India. But the organization teams' commitment ensured the tournament was no less successful at the new location.

Lets hope that the tournament gains more popularity in future and the Hyderabad Deccan Chargers retain the trophy the year after year.