Daily commentary: Fed on hold until economic data is weaker

By Edward Harrison On Jun 8, 2012

The big news yesterday was that Ben Bernanke did not back up Janet Yellen’s dovish commentary from the night before. Fed Chair Bernanke did say that the Fed was prepared to use unconventional measures to maintain an accommodative stance. But he said that it would do so only if necessary, implying that we are not there yet. I don’t think most people expected Bernanke to signal QE3 was coming. But after the dismal jobs report this month, there was chatter about the Fed extending its zero-rate policy out to four years or buying up long-term debt and selling short-term Treasuries. We didn’t get this and that was mildly disappointing for markets, particularly goldbugs.

The US economy is at stall speed, meaning any exogenous shock from Europe or China could tip the US economy into recession. At a minimum, the fiscal cliff could do so later in the year. And I expect one or more of these factors to send the US into recession by 2013. In my view, the fiscal cliff is the most potent anti-growth headwind for the US. But if Europe or China really slow sharply, these effects could also tip the US into recession as well. Clearly, China’s rate cut show you that they will fight against a hard landing but Europe has yet to come up with the goods. Therefore, at the moment I judge the European situation as more threatening in the medium-term.

That’s it. Here are the links.

P.S. – Note the article on US Bancorp because it shows you that some big bank models are different. The second tier of big banks in the US like PNC and USBancorp deserve a better look than Citi or BofA or JPMorgan Chase.

FT Alphaville » The end of artificial scarcity

Europe’s banks: Slouching towards a banking union | The Economist

Germany’s obstinate chancellor: Angela Merkel, swimming instructor | The Economist

Overcoming Bias : The Smart Are MORE Biased To Think They Are LESS Biased

China rate cut raises fears of grim May economic data | Reuters

macroblog: The skills gap: Still trying to separate myth from fact

Is China embracing CDOs? | beyondbrics

U.S. consumer credit grows by $6.5 billion in April | Reuters

Fitch slashes Spain rating by three notches to BBB | Reuters

France plans law to make firing harder – FT.com

Golden Dawn MP’s live TV assault shocks Greece | World news | The Guardian

JPMorgan trading loss shows danger in bank size: Volcker | Reuters