U.S. Federal Reserve tapers bond-buying to $75B US a month – Tapering of bond-buying program indicates central bank believes U.S. economy is recovering

The U.S. Federal Reserve has decided to taper its bond-buying program by $10 billion US a month, beginning in January.  As Ben Bernanke prepares to step down as chair of the powerful U.S. central bank, the Fed voted Wednesday to reduce its monthly bond-buying program from $85 billion to $75 billion a month, posted online by the CBC News yesterday morning. ‘Beginning in January, the committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term treasury securities at a pace of $40 billion per month rather than $45 billion per month,’ it said in a statement.  The move came as a surprise to investors, who did not expect the Fed to taper its stimulus in Bernanke’s final month in office. Markets surged on the news with the Dow up 200 points in the half hour after the announcement.  It was at an all-time high at the end of the day, up 292 points at 16,167. The bond purchases are intended to keep long-term loan rates low to spur economic growth, and Bernanke in his news conference noted that the Fed continues a high rate of stimulus and continues to build a large portfolio of U.S. bonds, now amounting to about $4 trillion.  He said there would be ‘further measured steps at future meetings’ to reduce the amount of bonds the Fed buys each month, likely throughout 2014.  The Fed has been closely watching economic indicators, including the unemployment rate, which is at a five-year low of seven per cent.  ‘Recent economic indicators have increased our confidence that the job gains of the past quarter will continue,’ Bernanke said. Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

Finance Minister Jim Flaherty says; “Can’t tie the hands of future governments”

  Wes Sheridan is still surprised. No, make that perplexed. You can hear it in the PEI finance minister’s voice on the day after the federal government’s abrupt decision to shelve all the work that’s been done on CPP reform.  ‘We had full consensus from 10 provinces and three territories to continue work on enhancing the Canadian Pension Plan, and the feds just shut it down,’ Sheridan said Tuesday. ‘That’s never happened in the past.’  Never might be a stretch. But it has taken a few years — seven in fact — for federal-provincial relations to revert back to the barely concealed hostility Canadians had come to expect whenever the two levels of government met, reported Chris Hall of the CBC News early yesterday evening. Just three years ago Jim Flaherty agreed to consider a modest, mandatory increase in CPP premiums to pay for higher retirement benefits in the future. Federal-provincial officials have been working out the exact details ever since.  To do nothing, Flaherty said back then, condemned some Canadians to a retirement without enough money to take care of themselves.  This week, however, a different story altogether from the federal finance minister after meeting again with his provincial counterparts.  He spoke about having had ‘frank discussions’ on CPP reform. Which everyone familiar with Ottawa-speak knows means no progress or agreement, let alone any consensus. Flaherty’s no longer taking the proactive approach he preached back in 2010.  His official position on CPP reform after Monday’s one hour discussion is: Not now, perhaps not ever. Years  anyway. Don’t ask. Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

The Volcker Rule: Banks have reason to be apprehensive

“Wall Street is preparing to swallow a bitter pill as the U.S. government finalizes a last dose of medicine for the banking industry to ward off a future financial crisis reported Joanna Slater of the Globe and Mail.” “After nearly four years of negotiations, U.S. regulators are expected on Tuesday to approve a definitive version of a contentious rule to curb risk-taking by banks.  Known as the Volcker Rule, the measure forbids banks from engaging in trading solely for their own profit.  Defining the limits of proprietary trading has proven a slippery endeavour.  Ever since the United States passed a financial-reform law in 2010, regulators and the banking industry have sparred about what should and should not be allowed. The final version of the rule marks the conclusion of that battle – and will indicate which side gained the upper hand.” “Tuesday is ‘as big a day as there will be’ in the journey to reform the banking industry after the financial crisis, said H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP in New York who is considered the dean of Wall Street lawyers. ‘This is a rule geared obviously at the big trading banks and has enormous ramifications.’  Mr. Cohen said that among his clients, ‘There’s trepidation as to substance, but there is also concern about error’ given the complexity and length of the rule (together with a preamble, it is reportedly close to 1,000 pages).” Read the full article here. Raymond Matt, CFP, CLU, TEP, CHS

Nobel laureate and human rights campaigner spent 27 years in prison


“Nelson Mandela, the anti-apartheid icon who became the first president of a democratic South Africa, passed away Thursday at his home in Johannesburg after a prolonged lung infection. He was 95.  South African President Jacob Zuma announced that Mandela, ‘the founding president of our democratic nation, has departed,’ adding that he ‘passed on peacefully'”, the CBC News posted online late yesterday afternoon. “‘Our nation has lost its greatest son. Our people have lost a father,’ Zuma said.  ‘Our thoughts are with the millions of people who embraced Mandela as their own and who saw his cause as their cause.… This is the moment of our deepest sorrow.’  Mandela will be accorded a state funeral, Zuma said, and national flags will be lowered to half-mast.  ‘We saw in him what we seek in ourselves.  And in him we saw so much of ourselves,’ he said. ‘Nelson Mandela brought us together and it is together that we will bid him farewell.’ Read the full article here. |Raymond Matt CFP, CLU, TEP, CHS

Bank of Canada keeps interest rate at 1%

“The Bank of Canada kept its benchmark interest rate at one per cent on Wednesday.  That’s the rate on which other retail banks base their rates for savers and borrowers.  The rate, known as the target for the overnight rate, sets the terms at which banks can borrow from the central bank and each other for short-term loans”, posted online by the CBC News yesterday morning. “The rate has been at that level for more than three years, dating back to September 2010. The bank meets every six weeks to decide on interest rates, and has now decided to leave the rate unchanged for 26 consecutive meetings — its longest stretch of inaction ever. Broadly, the bank lowers the rate when it wants to stimulate the economy, and raises it when it wants to slow down growth.  ‘The Bank continues to expect a soft landing in the housing market,’ the bank said in a statement announcing its decision. ‘The downside risks to inflation appear to be greater,’ it added.  The language of the statement is a sign the central bank is leading toward cutting rates, not raising them.” Read the full article here. | Raymond Matt CFP, CLU, TEP, CHS

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