Fed`s Bullard says must shield Fed independence

(BULLARD, COULD, INDEPENDENCE, THINK, YIELDS, GOING)

By Alister Bull
PHILADELPHIA (Reuters) - St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
"If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counterproductive in this environment," he said after giving a talk about monetary policy to a Global Interdependence Center event.
The atmosphere between the Fed and the U.S. Congress has become very tense in the wake of last year`s crisis. Lawmakers are angry over the taxpayer-backed rescues of investment bank Bear Stearns and insurer American International Group, which led to a public outcry that could hurt them in the polls.
Fed Chairman Ben Bernanke also endured a hostile congressional grilling last week over the Fed`s role in Bank of America`s purchase of Merrill Lynch, and lawmakers have demanded Fed emails and questioned its accountability.
All of this is taking place against the background of a record U.S. budget deficit, and an unprecedentedly aggressive Fed purchase program of U.S. government debt.
"We`ve got very large fiscal deficits. We`ve got the appearance...that the Fed is monetizing the deficit, pushing up yields. Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.
"So I think we are really in a delicate situation here as regards the independence of the Fed, and that is an important consideration going forward," he said in response to a question from the audience.
Bullard said that he did not believe the Congress really wanted to clip the Fed`s wings, but warned it would be easy for foreign investors to get the wrong message, and conclude that the Fed was going to finance the deficit by printing money.
"The Congress has thought over the last 100 years about how much independence to give the central bank. And when they really think about it, at the end of the day, they want the level of independence that we have. And so I think that will be the end outcome of this," he told reporters.
"I don`t think anyone involved intends to monetize the debt, but that is what it looks like to outsiders," he said.
EXIT STRATEGY
In earlier remarks, Bullard said that the Fed`s very accommodative monetary policy will remain in place for an extended period and a premature exit from this strategy could thwart U.S. economic recovery.
But Bullard said having a plan to shrink the monetary base after the Fed massively expanded it was important to control inflation expectations. And he said selling Fed-held assets was probably the most likely way it would choose to go.
"Without an exit strategy, expectations of high inflation may develop," Bullard said at the event, which was held at the Federal Reserve Bank of Philadelphia.
"If expectations of inflation feed into today`s long-term yields, those yields will rise today and hamper recovery prospects," he said in prepared remarks.  Continued...
Original article

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Fed`s Bullard says policy to stay loose for awhile

Fed`s Bullard says policy to stay loose for awhile

(BULLARD, COULD, INDEPENDENCE, THINK, YIELDS, GOING)

By Alister Bull
PHILADELPHIA (Reuters) - St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
"If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counterproductive in this environment," he said after giving a talk about monetary policy to a Global Interdependence Center event.
The atmosphere between the Fed and the U.S. Congress has become very tense in the wake of last year`s crisis. Lawmakers are angry over the taxpayer-backed rescues of investment bank Bear Stearns and insurer American International Group, which led to a public outcry that could hurt them in the polls.
Fed Chairman Ben Bernanke also endured a hostile congressional grilling last week over the Fed`s role in Bank of America`s purchase of Merrill Lynch, and lawmakers have demanded Fed emails and questioned its accountability.
All of this is taking place against the background of a record U.S. budget deficit, and an unprecedentedly aggressive Fed purchase program of U.S. government debt.
"We`ve got very large fiscal deficits. We`ve got the appearance...that the Fed is monetizing the deficit, pushing up yields. Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.
"So I think we are really in a delicate situation here as regards the independence of the Fed, and that is an important consideration going forward," he said in response to a question from the audience.
Bullard said that he did not believe the Congress really wanted to clip the Fed`s wings, but warned it would be easy for foreign investors to get the wrong message, and conclude that the Fed was going to finance the deficit by printing money.
"The Congress has thought over the last 100 years about how much independence to give the central bank. And when they really think about it, at the end of the day, they want the level of independence that we have. And so I think that will be the end outcome of this," he told reporters.
"I don`t think anyone involved intends to monetize the debt, but that is what it looks like to outsiders," he said.
EXIT STRATEGY
In earlier remarks, Bullard said that the Fed`s very accommodative monetary policy will remain in place for an extended period and a premature exit from this strategy could thwart U.S. economic recovery.
But Bullard said having a plan to shrink the monetary base after the Fed massively expanded it was important to control inflation expectations. And he said selling Fed-held assets was probably the most likely way it would choose to go.
"Without an exit strategy, expectations of high inflation may develop," Bullard said at the event, which was held at the Federal Reserve Bank of Philadelphia.
"If expectations of inflation feed into today`s long-term yields, those yields will rise today and hamper recovery prospects," he said in prepared remarks.  Continued...
Original article

Oil spikes to 8-month high on brief Brent bid frenzy

(PRICES, BARREL, BRENT, MARKET, TRADERS, ASIAN)

By Fayen Wong
PERTH (Reuters) - Oil prices jumped more than 2 percent to an eight-month high above $73 a barrel on Tuesday, as a sudden spike in Brent buying pinned on fund positioning ushered out the market`s best quarterly gain since 1990.
While the rally drew support from fresh attacks on oil facilities in Nigeria as well as improving risk sentiment aided by rising equity markets, traders said those factors were secondary to the sudden big Brent bid orders that triggered the frenzy, overwhelming liquidity during the thin Asian day.
Trading volume in both Brent and U.S. crude oil futures surged to more than 10 times the norm for the Asian time zone as prices leapt more than $1.50 in under half an hour around 0200 GMT (10 p.m. EDT), the sort of move typically only seen in the event of hurricanes or other major disruptions.
"It feels like short-covering because of stop orders left overnight," said a trader with a global investment bank.
Both prices and volumes cooled slightly by midday, with U.S. crude for August delivery up $1.29 at $72.78 a barrel by 0405 GMT, off its earlier eight-month high of $73.38. August trade was 12,400 lots versus a few thousand lots normally.
The main focus was on London ICE Brent crude, with volume in the front-month August contract surging to more than 17,000 lots versus the less than 1,000 lots normally, and prices spiking to a peak of $73.50 a barrel. Traders said bids for 500 or 600 lot clips spooked a market accustomed to 10-20 lot bids.
By 0407 GMT, Brent was up $1.66 to $72.65 a barrel.
Trading activity in U.S. gasoline and heating oil, which expire at the end of the day, was minimal.
Most traders were quick to point the finger at one or several big funds, either closing out loss-making positions, dressing up returns by boosting prices at the end of the quarter or perhaps taking a position in anticipation of a Q3 influx of new funds.
"This could be end of quarter movement, and traders are trying to push prices higher and then selling before closing their books," said Mark Pervan, senior commodities analyst at ANZ Bank. "I haven`t seen any new catalyst on the news front."
Others were more blunt about the unexplained surge in volume, which seemed to be counter-productive given the fact that any sizeable bid would drive up prices due to thin Asian liquidity.
"The only reason to do that size at that time of day is to try to move the market or because you are an idiot," said one.
Some analysts pointed to Nigeria, where the main militant group said on Monday its fighters had attacked an oil facility belonging to Royal Dutch Shell (RDSa.L) days after President Umaru Yar`Adua proposed an amnesty.
Driven by hopes of a global economic recovery, oil prices are on track to post a near 50 percent jump in the second quarter, the highest quarterly percentage gain since 1990.
Oil has rallied on hopes for an improving economic outlook and a growing appetite for risk among investors, a factor given further impetus by Asian and U.S. stock market gains.  Continued...
Original article

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Jobs may spark move in Apple shares on Monday

By Clare Baldwin
SAN FRANCISCO (Reuters) - A surprise appearance by Apple Inc Chief Executive Steve Jobs at the company's annual developer conference could boost its stock on Monday, but his absence might trigger a bigger move in the other direction.
The Wall Street Journal kicked off speculation of an early return by the ailing Jobs, who had said he would be out until the end of June. Blogs and other media jumped on the report that the CEO could appear at Apple's Worldwide Developer Conference in San Francisco on Monday.
Jobs, 54, the quintessential man in black, founded Apple, rescued it from mediocrity in the late 1990s, launched the iPod and the iPhone and is seen as its heart and soul.
Canaccord Adams analyst Peter Misek sees a rally of 1 to 5 percent in Apple's stock if Jobs makes an appearance, but no downside if he doesn't.
Global Equities Research senior analyst Trip Chowdhry said Apple's stock will likely remain high if Jobs appears, but could sell off as much as 10 percent if he doesn't, a scenario he finds more likely.
But the company's strong performance while Jobs has been recuperating indicates he is no longer crucial to the company's success, Broadpoint AmTech analyst Brian Marshall said.
Stock in the Cupertino-based company closed at $144.67, about 85 percent ahead of January's 52-week low of $78.20. But it was up less than 1 percent on Friday after news that Jobs might return early.
"It's not just about Steve Jobs," Marshall said. Investors are "very comfortable" with Chief Operating Officer Tim Cook as Apple's next CEO, he added.
BMO Capital Markets analyst Keith Bachman said a Jobs cameo would strengthen Apple shares, but less than in the past.
"If he made a cameo appearance on Monday and the wind didn't blow right through him, the stock would go up," he said, but the size of the rally would depend on other factors such as announcements regarding Apple's iPhone.
Apple's stock is historically volatile during the company's June developer conference. It dropped about 7 percent over the course of the conference in 2008 and about 4 percent in 2007.
"If this had happened one or two years before, the stock would have (had) huge volatility. But I think investors are conditioned to the fact that Steve's health is a variable that needs to be dealt with on an ongoing basis," Bachman said.
Apple managers are trying to coordinate Jobs' return with a product launch or public event, the Journal reported, but cited sources that Jobs is "one real sick guy."
AllThingsD, a website dedicated to "news, analysis and opinion about the digital revolution," speculated that Jobs, who is known for ending presentations with "one more thing," might himself be the surprise at the Monday keynote.
Wired.com reported that such a Jobs' appearance would be "dramatic" and a "crowd pleaser," but Gawker cautioned that Apple might not want a sickly leader on stage. Continued...
Source: Reuters