Nine months ago, a historic meeting was breaking up in the ballroom of a Secaucus, N.J., hotel. Anheuser-Busch shareholders had just agreed to sell America’s biggest brewer to an aggressive Belgian brewer called InBev.
August A. Busch IV, whose stint as chief executive of Anheuser-Busch would end with the sale, stepped down from the podium. "A bittersweet day," he said.
And then, Busch — the fifth generation of his family to lead Anheuser-Busch — slipped out of the hotel’s lobby.
But he wasn’t supposed to slip out of the public’s eye.
The new regime had given him a seat on the board of the combined company and a lucrative consulting deal — indications that he would be a sort of public ambassador for the new Anheuser-Busch InBev. Many expected him to ease Anheuser-Busch’s transition to new ownership, and act as a liaison between the new owners and A-B’s many constituencies.
It hasn’t worked out that way.
Since the buyout, Busch has not been spotted at industry events. No quotes in media reports, no pictures at meet-and-greets. From trade meetings to sales conferences with distributors, Busch has been a no-show.
"He has not been visible in the beer industry," said Harry Schuhmacher, editor of Beer Business Daily. "I just haven’t heard of him being around."
The disappearance seems odd given how much InBev paid for Busch’s services. As part of the buyout, InBev made him a highly paid consultant for Carlos Brito, CEO of the combined company.
Busch, 45, received $10.35 million as a lump sum and started collecting additional fees of about $120,000 a month. He also got a personal security detail and free access to events sponsored by A-B.
The official merger document seemed to outline a clear role for him at Anheuser-Busch InBev. At Brito’s request, Busch would advise InBev on new products; review marketing programs; meet with retailers, wholesalers, advertisers and the media; scrutinize the quality of Anheuser-Busch’s beers; and give advice about A-B’s relationship with charitable organizations and local communities.
"He was supposed to represent continuity from one era to the next, but I don’t know if he’s played much of a role" in the combined company, said Benj Steinman, editor of Beer Marketer’s Insights.
The lucrative consulting deal also tied Busch and InBev to a mutual "non-disparagement" covenant, limiting what Busch could say about InBev and what InBev could say about him. The company declined to make Busch available for an interview. Reached directly by the Post-Dispatch, Busch declined to comment, citing the consulting deal.
If anyone has emerged as the public face of A-B since Busch stepped aside, it’s Dave Peacock, who was Busch’s right-hand man and is now president of Anheuser-Busch. Since InBev acquired A-B, Peacock has led the company’s efforts to maintain alliances with distributors and employees.
Peacock has represented the company for signature events such as the Super Bowl, while speaking on behalf of the company when controversies have arisen, such as the company’s decision to cut more than 1,000 area jobs in December.
A-B InBev acknowledges that Busch’s work for the company has been limited to behind-the-scenes activity. A spokeswoman told the Post-Dispatch that his contributions "have proven very valuable," especially relating to the U.S. market. She did not enumerate those contributions. The company also declined to say how many board meetings Busch attended, or when.
Did InBev ever intend to lean heavily on Busch after the takeover? Veteran consultant Tom Pirko said it was not surprising that Busch was not prominent in the new company’s dealings bad credit car loans.
InBev wanted to change Anheuser-Busch’s culture and get rid of the Busch family’s hierarchy, Pirko said. The lucrative consulting arrangement was a way of hitting "the eject button" on the Busch family that had run the brewer since the Civil War.
"They wanted a clean break, without the baggage of the past," Pirko said. "When you do that, you have to remove the faces. To be a new company, you have to have new people."
The apparent withdrawal from public life isn’t just at the brewer. In January, Busch resigned as a director of FedEx Corp., a position he had held since 2003. That same month, he was granted a divorce from his wife of 2 1/2 years.
The next month, Anheuser-Busch held a large meeting of beer wholesalers in Houston. The event, aimed at introducing distributors to the new owners, would have been a perfect place to roll out August Busch IV. It would have been an opportunity to show continuity among all the changes. But he didn’t appear, according to industry observers.
Lately, Busch is splitting time between a new home near the Lake of the Ozarks and his other residence in Huntleigh. Busch, an experienced pilot, has been devoting some time to flying.
Not long ago, Busch was leading one of the world’s biggest brewers, trying to boost it out of a period of slow growth.
After being tapped in 2006 as the new chief executive, Busch became known for a management style more easygoing and low-key than that of his hard-charging father, August A. Busch III. In public appearances, the younger Busch was personable and energetic, Anheuser-Busch’s cheerleader in chief. He popped up at numerous state meetings, industry conferences and legislative summit meetings.
In April 2008, Busch IV rallied employees at a party outside A-B’s packaging plant on Pestalozzi Street to celebrate the 75th anniversary of Prohibition’s end.
"I love you guys, you ladies!" he said to rousing applause. "What an honor. An emotional day." Busch held up a bottle of Budweiser. "Here’s to our future … and another 75 fantastic years. Let’s go get ‘em!"
A few weeks later, at the company’s annual meeting at SeaWorld, Busch showed shareholders some of the company’s Super Bowl commercials, chatted about A-B’s NASCAR sponsorship and urged the hundreds of assembled investors to try some new Bud Light Lime.
Soon after A-B’s board approved InBev’s takeover bid on July 13, Busch started slipping into the shadows.
Perhaps, this shouldn’t have been a surprise, as an early scene of the A-B InBev era suggests.
It was the Monday morning after InBev’s acquisition of A-B was consummated. Busch joined the victorious Brito on a conference call with analysts and reporters. Busch spoke briefly of his faith that the Brazilian executive would "honor his public commitments and continue the traditions that have made Anheuser-Busch a success."
Then, for more than an hour, Brito talked about the future, outlining his plans for the new company. When Brito was through, he asked the St. Louis executives if they had anything to add.
Peacock offered a quick closing comment.
Busch remained silent.
The first time the Dow Jones industrial average entered five-figure territory, corporate bigwigs tossed hats that said "Dow 10,000" to cheering traders on the floor of the New York Stock Exchange.
That was a decade ago. Traders could soon see 10,000 again soon, but any celebrating would be more relief than an expression of brimming confidence.
The Dow stands about 500 points shy of the 10,000 mark, putting the milepost on investors’ radar for the second time in a year. Here are some questions and answers about what it would mean for the Dow to hit 10,000.
When did the Dow first close above that level?
March 29, 1999, in the midst of a powerful market rally that would end with the dot-com collapse at the start of this decade.
What would it mean this time?
Some analysts say it holds little significance given how far the market remains from its peak almost two years ago. But many contend that seeing Wall Street’s best-known thermometer roll back to five digits could inject traders with confidence.
"It’s like a century rather than 99 years. There’s not that big of a difference but there’s a big difference psychologically," said Dan Cook, senior market analyst at IG Markets in Chicago.
Should a climb past 10,000 make investors more confident?
Analysts are divided. But it would certainly feel better than when the Dow skidded 370 points on Oct. 6, 2008, to close below 10,000 for the first time in four years.
But some say reaching 10,000 would make them nervous that the market was overheated.
What would be needed to push the Dow above 10,000?
Investors will need to see more signs of an improving economy, because the market tends to bounce back as the economy is getting ready to recover from a recession. Investors need reassurance that they’ve been right to buy into the market.
Recent economic readings have signaled that the recession could be ending.
"It’s good news that the market has reached 9,500, but it’s particularly good news that it’s confirmed by most of the important economic numbers we’re looking at," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, N.Y.
Should average investors prepare in some way for the Dow at 10,000? Should they even care?
Long-term investors shouldn’t react to day-to-day moves in the market, but it could be a good time to prune portfolios. Most financial advisers say it’s wise to pull money from the strongest performers and funnel some of it to other investments. That helps guard against letting one part of a portfolio carry too much weight.
What if it doesn’t happen?
A key measure of consumer confidence jumped much more than predicted in August, as the job market outlook and business expectations improved, said a report released Tuesday.
The Conference Board, a New York-based business research group, said Tuesday that its Consumer Confidence Index rose to 54.1 in August from an upwardly-revised 47.4 in July.
Economists were expecting the index to increase to 48, according to a Briefing.com consensus survey. The measure is closely watched because consumer spending makes up two-thirds of the nation’s economic activity.
The index posted declines in June and July, but the reading "appears to be back on the mend," said Lynn Franco, a director at The Conference Board, in a prepared statement.
"Consumers were more upbeat in their short-term outlook for both the economy and the job market in August," Franco added. But the reading for income expectations rose only slightly.
Despite August’s increase, the index remains at historically low levels. An overall reading above 90 indicates the economy is solid, and 100 or above signals strong growth.
The report is based on a survey mailed to a representative sample of 5,000 U.S. households. The questionnaire asks whether respondents think current business conditions are good, bad or normal, about employment conditions, as well as if they expect employment or income levels to improve or deteriorate over the next six months.
Job market outlook. The percentage of respondents expecting more jobs in the next six months rose to 18.4% from 15.5%.
Similarly, those saying jobs are "hard to get" slipped to 45.1% from 48.5% in August, while responses that jobs are "plentiful" ticked up to 4.2% from 3.7%.
Earlier this month the Labor Department reported that 247,000 jobs were lost in July and the unemployment rate fell to 9.4% from 9.5% in June — the first decline in more than a year.
According to government figures, 237,000 fewer people were unemployed last month. That decline could be due to discouraged job seekers who have stopped looking, people who have now retired, or those have gone back to school. But the rate does include people who have exhausted their unemployment benefits or do not collect them.
Income expectations. Consumers were only slightly more positive in their income expectations, Franco noted. Those expecting an increase in their incomes jumped to 10.6% from 10.1%.
"As long as earnings continue to weigh heavily on consumers’ minds, spending is likely to remain constrained," Franco said.
Business conditions. Consumers anticipating business conditions to improve over the next six months increased to 22.4% from 18.4% in July, the report said.
Conversely, respondents expecting conditions to worsen in the months ahead slipped to 15.8% from 19%.
Investors are hoping the surprisingly strong summer market rally will last at least one more week — before any second-guessing in the fall kicks in.
"We saw a huge rebound at the end of last week and that will probably carry over," said Richard Hughes, co-president of Portfolio Management Consultants. "But the trading volume is going to be very light."
The S&P 500 has jumped just shy of 52% since hitting a 12-year low on March 9. Bets that the sky is not falling after all and the economy will recover - paired with generous fiscal and monetary stimulus - have boosted the market.
But the recent leg of the advance has been run on thin trading volume, even for summer. Low volume tends to exaggerate market moves.
"It won’t be until September that we’ll be able to really see how it settles," Hughes said. "The focus is shifting from wondering when the recession is going to end to wondering what a recovery is going to look like," he said.
Next week brings reports on personal income and spending, as well as home prices, all of which are important in the bigger discussion about how the consumer is holding up. A revision of second-quarter gross domestic product (GDP) is also on tap.
Confirming a recovery: Last week, Fed chief Ben Bernanke said the U.S. economy is nearing a recovery, although the pace will be slow as unemployment stays high.
Reports on housing and manufacturing showed surprising gains last week, while the closely-watched weekly jobless claims report showed more Americans filed for first-time benefits than economists were expecting. In the weeks ahead, Wall Street is going to be looking for more confirmation that a recovery is underway.
"Typically when you’re moving from recession to expansion, you get numbers that conflict with each other, like the jobless claims," said David Chalupnik, head of equities at First American Funds. "That trend will continue."
He said that of greater interest in the weeks ahead will be "how quickly the economy makes the transition" into a period of expansion and whether the consumer starts spending again. Consumers have jumped into the government’s soon-to-end Cash for Clunkers program, but have otherwise held back on non-essentials..
On the docket
Monday: There are no market moving events on the schedule Monday.
Tuesday: The August consumer confidence index from the Conference Board is expected to have risen to 48.8 from 46.6 in July, according to a consensus of economists surveyed by Briefing.com.
The S&P/CaseShiller home price index, a measure of 20 major cities, is expected to have fallen 16.4% in June versus a year ago after falling 17.1% in May. If that estimate turns out to be accurate, it would be the third month in a row that the pace of declines has lessened.
In May, the report showed that home prices rose versus the previous month, the first monthly increase in almost 3 years.
Wednesday: New home sales are expected to have risen to an annualized rate of 390,000 in July from an annualized rate of 384,000 in June. The Commerce Department report is due after the start of trading.
July durable goods orders are expected to have risen 3.2% after falling 2.5% in June. Orders, excluding transportation, are expected to have risen 1% after rising 1.1% in June. The Commerce Department report is due in the morning.
The weekly crude oil inventories report from the Energy Information Administration is also due in the morning.
Thursday: Second-quarter gross domestic product growth (GDP) is expected to have contracted at a 1.4% annualized rate, worse than the initially reported 1% rate, but not as sharp as the 6.4% decline in the previous quarter. The Commerce Department report is due before the start of trading.
A report is also due in the morning on weekly jobless claims.
Toll Brothers (TOL) reports results in the morning. The homebuilder is expected to report a loss of $1.26 per share versus a loss of 18 cents a year ago, according to a consensus of analysts surveyed by Thomson Reuters.
Dell (DELL, Fortune 500) reports results after the close. The computer maker is expected to have earned 23 cents per share versus 31 cents a year ago, according to forecasts.
Friday: The Commerce Department releases reports on July personal income and spending before the start of trading.
Income is expected to have risen 0.1% after falling 1.3% in June. Spending is expected to have risen 0.2% after rising 0.4% in June. The PCE Core deflator, the report’s inflation component, is expected to have risen 0.1% after rising 0.2% in June.
The University of Michigan’s consumer sentiment index, due shortly after the start of trading, is expected to be revised up to 64.8 from the originally reported 63.2.
Small M&A advisory shops, once expected to be among the biggest beneficiaries of the financial crisis, are instead struggling to grow and are facing pressure to expand beyond their advisory businesses.
Analysts and investors had expected advisory firms such as Greenhill, Evercore Partners and Duff & Phelps to boost revenue by tapping talented bankers from large institutions, where writedowns on credit losses led to U.S. government cash injections and restrictions on pay.
But earnings at these so-called boutique firms have also been squeezed by the global recession and hiring has proved to be costly in spite of the downturn.
“If you’re doing M&A advisory in a period where there’s a lot of activity going on, then great,” said Roger Freeman, an analyst at Barclays Capital. “But when that ends you start scratching your head and thinking how are you going to make money — and if you’ve taken that extra step and gone public, now the pressure’s on you from shareholders.”
Year-to-date, U.S.-target M&A has slipped to $438.1 billion, compared with $725.9 billion over the same period a year earlier, according to Thomson Reuters data.
No matter what unique niche they occupy, advisory shops need to look beyond their core business to expand, Freeman said.
“You inevitably see it expand because you hit the limits of what you can do in that narrow scope and investors want to see revenue growth,” he said.
Like the larger banks, advisory companies’ stock has been volatile this year. While Evercore shares have leaped more than 80 percent since the start of the year to $22.51, Greenhill shares are up 5.5 percent at $73.82 and Duff & Phelps shares are down 4 percent at $18.28.
ACQUISITIONS
Many advisory shops had been relying on restructuring fees to offset the drop in acquisitions, but there is concern the slowly improving capital markets may curtail the restructuring business without providing an offsetting boost in takeovers.
That has some shops now looking for acquisitions of their own to capitalize on advantages they have over larger firms such as Goldman Sachs and Morgan Stanley, which became bank holding companies last year and are now subject to more onerous regulation.
Some, such as Gleacher Partners, an advisory firm run by banking veteran Eric Gleacher, have already joined forces with other businesses. Gleacher agreed in March to combine with Broadpoint Securities Group, a small independent investment bank, to form Broadpoint Gleacher. Broadpoint shares have soared more than 100 percent since the start of the year to $6.33.
Others, including Evercore, which has climbed to 10th place in the year-to-date league table for global mergers and acquisitions, are planning to build out investment management businesses.
“We’re going to … carefully look at high-quality opportunities to expand that business,” Ralph Schlosstein, the firm’s new chief executive, said on a call with analysts discussing second-quarter results.
Evercore, which acquired Bank of America Corp’s special fiduciary services division in April, had about $3 billion under management at the end of the second quarter, but it has been hurt by losses on private-equity investments.
The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Indeed, the MBA survey reported that prime, fixed-rate mortgages accounted for nearly one in every three foreclosure starts. That’s way up from a year ago, when only one of every five foreclosure start involved a prime loan.
That bodes ill for the future health of the mortgage market. Prime loans make up two-thirds of the mortgage market, and if delinquencies among these mortgages continue to proliferate, the number of foreclosures will soar free credit report instantly.
Brinkmann forecasts continued delinquency and foreclosure increases until the economy starts to recover. He predicts that job losses will peak by mid-2010, as will delinquencies, and foreclosures will start to fall about six months later.
Problem areas
The so-called "sand states" continue to contribute disproportionately to the mortgage meltdown. Four states — California, Florida, Arizona and Nevada — accounted for 44% of all foreclosure starts during the quarter.
"Issues related to the deteriorating economy and deteriorating home prices in those states have driven their delinquency problems]," said Brinkmann
In Florida, 12% of mortgages were somewhere in the process of foreclosure, the highest in the nation; another 5% were at least 90 days past due as of the end of June.
Adding in 30 days and 60 days past due and Florida’s total delinquency rate comes to 22.8% — almost twice the national percentage. The next highest states are Nevada at 21.3%, Arizona at 16.3% and Michigan at 15.3%. California stood at 15.2%, but because it is such a large state, that represents nearly 900,000 mortgage borrowers.
"It’s hard to look at a national recovery," Brinkmann said. "We could have multiple bottoms with some markets recovering much faster than others."
Facing mounting bank failures, regulators are putting a new twist on a familiar idea: splitting a bank’s good assets from the bad ones.
The Federal Deposit Insurance Corp. said last month it would consider splitting the toxic assets of a failed bank from its more valuable parts, such as deposits and loans that aren’t going sour.
The goal is to help the FDIC, facing the biggest wave of bank failures in almost two decades, find new buyers for the remains of failed banks while limiting losses on its depleted insurance fund.
"This helps us widen the net in marketing bank assets," said FDIC spokesman David Barr. "When you have the inventory we have, you look for different ways to try to sell it."
Thanks to the ill effects of the housing bubble, the FDIC certainly has the inventory. Barr said the FDIC had $26.5 billion in assets in liquidation at the end of July, with two-thirds of that in mortgages and real estate-backed securities.
Though the FDIC says it’s having success in finding buyers for much of these assets, it is also trying to find ways to move inventory at better prices. In one program, the agency will provide financing to acquirers of troubled loans.
"There has been little activity in sales of whole loans," said Hal Reichwald, a lawyer at Manatt Phelps & Phillips in Los Angeles who represents investors. "The danger is you could end up with a bottleneck in the distressed asset markets."
Wave of failures
When a bank is on the verge of collapse, the FDIC typically tries to find buyers for the entire bank at once, often with the help of deals in which the agency shares losses on the failed bank’s bad loans.
Friday’s failure of Alabama’s Colonial BancGroup is one such deal: buyer BB&T (BBT, Fortune 500) took on most of Colonial’s $25 billion in assets, with it and the FDIC sharing losses on two-thirds of that pool. Some $3 billion of assets will remain with the FDIC for later disposition, the agency said in a statement Friday.
But with banks failing at a clip not seen since the late stages of the savings and loan crisis in the early 1990s, finding a buyer for the whole bank isn’t always possible.
So far in 2009, 77 banks have failed — more than triple the 2008 toll. The FDIC has taken on some assets in many of those deals, and it has failed to find takers of any kind for six banks — including the giant correspondent bank Silverton, which went under in April with $4.1 billion in assets.
In a more recent case, the FDIC couldn’t find a buyer for a small bank in Georgia, even after contacting 300 potential buyers.
The wave of failures and resulting soft demand have left the FDIC weighing the benefits of attracting new capital to shore up failed banks against the risks of allowing private equity investors, which typically use a lot of debt to finance deals, to become more active buyers compare car insurance prices.
Last November, the FDIC issued rules expanding the field of bidders for troubled bank assets. But last month it proposed holding private investors to higher capital standards and imposing a waiting period that would keep buyout firms from "flipping" banks.
"The question is real equity vs. borrowed equity," said James Angel, a finance professor at Georgetown University. "The temptation is to lever yourself up to your eyeballs, and that’s something the FDIC has to be on guard against."
How the agency decides to treat private equity buyers could go a long way toward deciding whether the bad-bank plan succeeds.
That said, the FDIC’s approach marks the first time during the financial crisis that the bad-bank concept has been considered as something other than a Hail Mary pass.
Lehman Brothers proposed a split last September to rid itself of its troubled commercial real estate assets, in a desperate bid to restore market confidence. Investors rejected the plan as unworkable and the firm filed for bankruptcy just days later.
Since then, the government has toyed with variations on good-bank/bad-bank plans for healthy institutions at least twice. The first was former Treasury Secretary Hank Paulson’s original plan for the Troubled Asset Relief Program. Then there was discussion of a so-called aggregator bank by the Obama administration.
But those plans foundered due to questions of how the bad assets would be valued and how the already capital-constrained banks getting rid of those assets would make up for the resulting losses.
That isn’t a problem for the FDIC. As the receiver of failed banks, it takes possession of the assets itself.
Still, bankers expect to continue struggling with the issue of how much to pay for bad assets for some time — even though a robust bank stock rally over the past five months suggests investors are less worried about toxic assets than they once were.
"There are a ton of toxic assets out there right now," said Norman Skalicky, CEO of Stearns Bank, a St. Cloud, Minn.-based lender that has bought several banks and a $730 million loan portfolio from the FDIC over the past year. "But then, they say there are no toxic assets — just toxic prices."
More employers are planning to reverse pay cuts and other employee cutbacks, another sign that the employment picture is improving, according to a survey released Thursday.
The percentage of employers who will reverse pay cuts jumped to 44% in August from 30% just two months ago, consulting firm Watson Wyatt said.
About one-third of companies plan to unfreeze salaries within the next six months, up from 17%, according to the report that surveyed 175 large employers.
"Some employers are seeing the light at the end of tunnel and feeling optimistic," said Laura Sejen, a director at Watson Wyatt, in a statement..
Almost one-quarter of employers plan to reverse reductions to 401(k) match contributions in the next six months, up from just 5% in June online payday loan.
However, health care did not fare as well. The survey found 66% of companies that increased the percentage employees pay for health care premiums do not expect to reverse that decision.
And 40% are planning to increase the percentage employees pay for health care premiums. About the same number expect to increase the deductibles, co-pays or out-of-pocket maximums for 2010 health care plans.
The Federal Reserve said Wednesday it appears that the U.S. economy has halted the longest period of decline since the Great Depression, although it cautioned that economic activity is likely to remain weak in the near term.
The central bank left its key overnight interest rate at a 0% to 0.25% range, as expected. Its statement at the conclusion of its two-day meeting said "economic activity is leveling out."
That is the Fed’s most bullish assessment of the economy in more than a year, and suggests that a recovery may have started.
It said it still expects "inflation will remain subdued for some time" and said that it expects rates to remain near zero percent "for an extended period."
The Fed cut interest rates to the record low range at its December meeting in an effort to spur the struggling U.S. economy at that time.
It also pumped about $1 trillion of cash into the economy during the last year through a number of extraordinary programs, including the purchase of Treasurys and mortgage-backed securities, as well as new programs to get banks and other lenders to extend credit to consumers.
The Fed statement said it believes those actions, along with the stimulus packages passed by Congress "will contribute to a gradual resumption of sustainable economic growth."
Change of tone: Economists said the Fed’s statement represented a significant change from its recent pronouncements on the state of the economy.
"It think we are really seeing a paradigm shift in thinking at the central bank," Sung Won Sohn, an economics professor at Cal State University, Channel Islands. "They are no longer concerned about a severe economic contraction as they were last fall. They now want to nourish the budding economic recovery."
But Sohn and Rich Yamarone, director of economic research at Argus Research, said the Fed is unlikely to raise interest rates anytime in the foreseeable future, even if it starts to pull back on some of the other programs it used to pump money into the economy.
"Many of the Fed’s emergency initiatives were rescue measures enacted for a sinking economy," said Yamarone payday advance lenders. "Now that the economic recession has seemingly stabilized, the Fed can afford to pull in a few of its life rafts. But it’s a safe bet the Fed finds comfort in keeping a few life preservers in the water until the coast is clear."
Robert Brusca of FAO Economics said that despite the change in tone in the statement, it’s premature to say that the Fed sees the economy as definitely entering into a period of recovery.
"The Fed is getting less worried, but is not at a point to depend on a recovery yet or to bet on how strong it will become," he said.
The Fed said Wednesday it expects to complete the previously announced purchases of $300 billion of Treasurys by October, and that to have "a smooth transition in markets" it will slow those purchases between now and then.
In recent weeks, there has been a growing consensus among top economists that the U.S. economy has turned around or is close to doing so. A number of economic readings, including the government’s employment report and the gross domestic product, the broadest measure of the nation’s economic activity, have improved — although they still show job losses and a modest drop in GDP.
The Fed has long been on record as saying it expected economic growth to return in the second half of 2009, although it expected a modest recovery at that time. The statement Wednesday is the most explicit declaration yet that recession that started in December 2007 has come to an end.
U.S. stocks sustained earlier gains Wednesday afternoon after the Fed’s statement. Bond prices, which had been lower before the announcement, slipped further. Treasury rates, which move in the opposite directions, rose as the Fed detailed its plans on purchases.
Do you think the Fed is right that the economy has found a bottom? What do you think about the job the Fed has done trying to fix the economy? Share your thoughts below.
British inflation will be well below the 2% target in two years if interest rates rise in the first quarter, the Bank of England said on Wednesday, suggesting markets are pricing in rate hikes too early.
In its quarterly Inflation Report, BoE projections showed CPI inflation at around 1.4% in two years’ time if rates follow the path implied by market expectations — rising to 0.7% in the first quarter of 2010 and going up thereafter.
But assuming interest rates stay at a record low of 0.5% and the BoE reaches its 175 billion pound quantitative easing target, "the risks of inflation being above or below the 2% target at the two year horizon are broadly balanced, albeit that the path of inflation is rising."
The latest forecasts are likely to raise expectations that the Bank will keep interest rates where they are for some time to come or even have to further expand its quantitative easing program to get the economy growing strongly again fast cash personal loans.
While the inflation profile was similar to that published in May, the outlook for growth was "somewhat stronger" given the extra stimulus penciled in.
The BoE charts show growth returning at the turn of the year and getting close to a rate of 3% in two years’ time.
"The stimulus should lead to a slow recovery in economic activity, but the timing and strength of that recovery remains highly uncertain," the BoE said.
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