Daily commentary: Fed on hold until economic data is weaker

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

Spain too big for EU rescue fund as China recoils – Telegraph

Spain Blinks – Telegraph Blogs

ECB Says Target2 Claims Don’t Reflect Central Bank Risk Exposure – Businessweek

BBC News – Argentina’s President Fernandez stops saving in dollars

Germany must take control of the eurozone crisis – before it’s too late | George Soros | Business | guardian.co.uk

China surprises with interest rate cut – Telegraph

BBC News – China’s wealth fund CIC ‘scales back exposure to Europe’

FT Alphaville » The parable of water

Current account positions in the euro area, % of GDP

Germany comes round to idea of soft bailout for Spanish banks | In English | EL PAÍS

“The Maastricht Treaty Could Make a Huge Difference to their Lives” | Modern Monetary Realism

Italy May Have to Kick Its Cash Habit as Monti Cracks Down on Tax Evaders – Bloomberg

Argentina: we are investor friendly! | beyondbrics

Spain calls for new tax pact to save euro | Business | The Guardian

"The Price of Inequality" by Joseph E. Stiglitz | Project Syndicate

U.S. Bancorp’s Davis Bores Into Top Rank: Riskless Return – Bloomberg

Australian Economy Shows Surprising Strength – WSJ.com

Is The President Of Estonia Dissing Paul Krugman On Twitter? – Business Insider

Moody’s cuts rating of German and Austrian banks – Telegraph

Apple the Patent Troll Requests For Preliminary Injunction Against Samsung’s Galaxy S3 – Droid Life

Spanien und die Brandstifter – eine hausgemachte Krise » Spiegelfechter

"The Wrong Austerity Cure" by Laura Tyson | Project Syndicate

The end of the con in China: Andy Xie – Caixin Online – MarketWatch

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