United States
* Federal Reserve Chair Janet Yellen in her second day of testimony Thursday said the central bank's goal is to keep interest rates low for as long as is needed to spur a faster return to full employment, arguing that the Fed's stimulus measures have been helpful in boosting growth. "Our objective in monetary policy is to continue to maintain an accommodative monetary policy for as long as necessary to see recovery of the labor market" and reach maximum employment, Yellen told the Senate Budget Committee. Yellen said the measured tapering of the Fed's asset buying will go on so long as there is continued in the jobs market, "and an overall pattern of growth that is sufficient to cause us to project continue improvement."
* Yellen said price stability, the other part of the Fed's dual mandate, also is a consideration, and policymakers are looking to see if incoming data suggests inflation will also be moving back to 2% over time. If the answer is in the affirmative, "we will continue to reduce the pace of our asset purchases," Yellen said. She assured the Senate panel that no Fed official holds the opinion that there is a "permanent tradeoff" between inflation and unemployment. "We all recognize that inflation expectations matter and can shift over time," she said, and no one wants to see a return to 1970s-style inflation.
* Yellen also reiterated again that the Fed expects its swollen balance sheet to gradually decline over time - after the point when the Fed determines it is appropriate to begin tightening monetary policy. "We'll probably wait until we are in the process of normalizing policy to decide just what our long-run balance sheet will be," she said.
* Dallas Federal Reserve Bank President Richard Fisher said Wednesday monetary policymakers need to start thinking about when, once the Fed stops expanding its balance sheet through large-scale asset purchases, it should start letting the balance sheet shrink by allowing maturing securities to roll off. Fisher, a voting member of the Fed's policymaking Federal Open Market Committee this year, told MNI in an exclusive interview, that barring an "extraordinary event," he will vote to cut the remaining $45 billion in monthly purchases of longer term Treasury and mortgage backed securities by $10 billion at the June, July and September FOMC meetings, and then advocate a final $15 billion cut to end the Fed's third round of quantitative easing on Oct. 29. Beyond that, he said the timing and pace of hikes in the federal funds rate will "depend on the economy" but should not be delayed too long.
* Philadelphia Federal Reserve Bank President Charles Plosser said Thursday the U.S. central bank should be more explicit in how it would react in certain economic situations in order to increase transparency, saying "forward guidance could be enhanced if the central bank was more explicit in articulating its systematic approach to policy." In a speech prepared to the Council on Foreign Relations. Plosser, a voter on the Fed's policymaking Federal Open Market Committee this year, emphasized he places "a great deal of importance on systematic behavior both as prescription for good policy" and in terms of his own policy deliberations.
* Responding to questions later, Plosser said some monetary policy models, which the Fed uses in a more systematic way, suggest rates should be above zero already. "So the question is: how do we talk about policy going forward when these various rules are suggesting we should be above zero and we're not?" he said. "How do we talk about that? How do we communicate our reasons for doing that?"
* U.S. support for the International Monetary Fund is an economic and a national security priority for the Obama administration, U.S. Treasury Secretary Jack Lew said Thursday, urging Congress to pass the IMF quota reform which he said will "change the composition, but not the level, of our financial commitment to the IMF." In testimony to the House Financial Services Committee, Lew warned that failure to approve the quota reform undermines U.S. leadership in the international financial institutions and hinders the IMF's ability to help countries in crisis, such as Ukraine.
* Sen. Jack Reed, the second ranking Democrat on the Senate Banking Committee, told MNI Thursday that congressional efforts to pass mortgage finance overhaul legislation this year are "very serious," adding that key senators "want a result, not just frame the debate for the future." Reed said intense talks are occurring among members of the Senate Banking Committee on legislation to overhaul the U.S.'s mortgage finance system.
U.S. Data
* U.S. chain-store sales posted a strong gain of 6.0% for the fiscal month of April on a year-over-year basis, according to a tally of comparable-store sales compiled by the International Council of Shopping Centers (ICSC). Consumer spending was buoyed by pent-up demand.
* The 10-company Johnson Redbook Same-store Sales Index (SSI)* was up 6.0% in April following a 2.9% gain in March and a 3.0% gain in February. SSI (excluding drug stores) rose 5.2 % following a 2.9% gain in March and a 2.5% gain in February. Fred's was the only company which registered negative results, -2.3%.
* Freddie Mac Thursday released the results of its Primary Mortgage Market Survey, the 30-year fixed-rate mortgage averaged 4.21% for the week ending May 8, 2014, down from last week when it averaged 4.29%. The 15-year FRM this week averaged 3.32%, down from last week when it averaged 3.38%.
U.S. Markets
* Prices of U.S. Treasuries ended Thursday mildly higher, with the 30-year bond the exception as lower after a weak $16 billion 30-year bond auction.
* The U.S. monetary authorities did not intervene in the foreign exchange markets during the January - March quarter, the Federal Reserve Bank of New York said in its quarterly report to the U.S. Congress.
* Euro-dollar opened at $1.3936 having traded up to a European high of $1.3950 as traders leaned towards there being no fresh stimulus from the ECB meeting and press conference. This appeared to be the case as all rates were left unchanged as expected, but still caused a blip to $1.3960 before falling back to $1.3939, and was trading at $1.3947
* US stocks have had yet another frenzied session, with stocks opening in positive territory only to later turn south later and end mixed. The DJIA closed up 32 pts at 16,550.97, the Nasdaq Composite down 16 pts at 4,051.496 and the S&P 500 down 3 pts at 1,875.63. Earlier, the DJIA and S&P 500 peaked at 16,622.95 and 1,889.07. The DJIA traded briefly above last Friday's post non-farm payroll peaks at 16,620.06, but the S&P 500 failed to revisit its NFP peaks at 1,891.33. These were the highest levels seen since April 4, when the DJIA and S&P 500 posted new record highs of 16,631.63 and 1897.28 respectively.
Canada
* Canada New Housing Price Index growth pace remained steady at 0.2% in March, but accelerated to 1.6% from 1.5% on a 12-month basis, Statistics Canada reported Thursday. Land price growth lagged that of house only prices, the data showed, although both slowed down from their February readings. Following a 0.1% increase in February, land only prices were unchanged in March for the first time since December of last year. On a year-over-year basis, land only price growth also decelerated to +0.8% from +0.9% in February, recording its smallest advance since a 0.7% gain in December 2010.
* Canada housing starts soared in April by almost exactly the amount they had plunged in March, with 194,809 units recorded from 156,592 the previous month, at seasonally adjusted annual rates, Canada Mortgage and Housing Corporation said Thursday. Monthly starts of 194,809 units in April included 176,792 urban starts versus 142,631 in March, and rural starts of 18,017 against 13,961 in March, Urban multiple starts showed the big increase, at 117,612 against 87,048 in March. Single-detached family dwellings were up slightly, to 59,180 SAAR from 55,583.
Mexico
* Mexico consumer prices fell in April, dropping 0.19% from the prior month, which compares to a 0.07% rise in the same month of 2013 and marks the first decline since July of last year and the largest since May, state statistics agency INEGI reported Thursday. The decline was driven by large price drops in agriculture, especially fruits and vegetables which fell 5.47%, and energy which declined 2.0%, the report showed.
Europe
* European Central Bank President Mario Draghi signaled Thursday that the Governing Council is gearing up for further easing measures in June after keeping policy on hold again in May. The ECB had been widely expected to postpone any action to next month, when new ECB staff forecasts for inflation and growth will be available and European parliamentary elections on May 25 will have taken place. "I would see this discussion as a preview of the discussion we are going to have next time," Draghi said of today's meeting. "At the end of this discussion, I would say that the Governing Council is comfortable with acting next time but before, we want to see the staff projections that we come out with in early June." While Draghi left the door for inaction in June a crack open by noting that the Council will first need to look at updated staff forecasts, a move in June appears more likely than ever.
--MNI Washington Bureau; tel: +1 202-371-2121; email: hscott@mni-news.com