Archive for June, 2008

Election could delay Fed rate rise until December (Reuters)

Sunday, June 29th, 2008 | Finance News

WASHINGTON (Reuters) -
The Federal Reserve may be hesitant
to raise interest rates ahead of the U.S. election in November,
although there is no hard evidence to support the widely held
view that politics influences monetary policy.

The Fed has raised rates in election years, as well as
leaving them on hold or cutting. As a result, there is no
pattern to confirm the strong sense that the central bank
prefers to hold fire as Americans go to the polls.

Nonetheless, economists say the case for rate increases
would have to be particularly convincing for the Fed to act.

"The Fed will want to be as low-key and invisible as
possible and that means the Fed will not want to change the
funds rate ahead of the election," said William Poole, who
retired in March as president of the St. Louis Federal Reserve
Bank
after a decade on the Fed's rate-setting committee.

"But I believe that if there is a compelling case, the Fed
will do so," he said. "I do not believe the Fed will abstain
from necessary policy action because of the election."

Some see political calculations delaying Fed action until
after the November 4 presidential election to the central
bank's first post-vote policy meeting on December 16.

"We're facing an election, and the Fed usually tries to
stay on the sideline," said Henry Kaufman, a veteran observer
of the U.S. economy and former chief economist with Salomon
Brothers in the 1970s and 1980s.

"I doubt whether the Federal Reserve will, as it is now
structured, have the strength within its voting power to say
we're going to go up 50 basis points, 50 basis points, 50 basis
points," Kaufman told Reuters earlier this month, referring to
the possibility of a series of half-percent point moves.

Interest rate decisions are subject to a vote by members of
the Federal Open Market Committee. The ballot is split between
the presidentially appointed members of the Fed's Board of
Governors in Washington and five of the 12 regional Federal
Reserve bank presidents
.

BLAME GAME

Insiders deny politics influences their decisions. But
there is no doubt moving rates in an election year can make the
Fed either hero or goat from a political perspective, earning
the ire of the party that feels central bank action -- or
inaction -- cost it votes.

Former President George H.W. Bush famously blamed then-Fed
Chairman Alan Greenspan for not lowering rates more
aggressively as he campaigned for re-election in 1992.

That was the year in which "It's the economy, stupid"
became Bill Clinton's winning slogan.

"I think that if the interest rates had been lowered more
dramatically, that I would have been re-elected president
because the recovery that we were in would have been more
visible," Bush told British interviewer David Frost in an
interview aired in 1998

"I reappointed him, and he disappointed me."

BERNANKE FED

The current Fed under Chairman Ben Bernanke slashed
benchmark overnight rates to 2 percent in seven steps that
began in September.

But it is now increasingly worried about inflation in the
face of surging food and energy prices, and last week it halted
the rate-cut campaign and hardened its warnings on prices.

Investors think this means the next move in rates will be
up, and see almost an 80 percent likelihood of a quarter-point
rise by the Fed's meeting at the end of September.

Some economists, concerned the economy is still fragile,
think it will take longer for growth to recover and argue
against hasty rate action.

In particular, they worry that more than $100 billion of
economic stimulus checks the government is sending households
will deliver only a temporary fillip to consumer spending.

Once that money runs out, the economy could stumble, and
they think the Fed will want to watch spending behavior over
the summer and early fall before raising rates.

Data on Friday showed that stimulus checks had pushed
consumer spending up by a sharper-than-expected 0.8 percent
last month and pushed up disposable personal income by the
largest amount since 1975.

Economists at JPMorgan saw this doubling second-quarter
U.S. growth to a 2 percent annual pace, but they warned it
would fall back to 1 percent in the third quarter.

As the Fed weighs inflation and growth risks, it has only
three more scheduled meetings before the presidential election
-- August 5, September 16 and October 28-29.

If Bernanke trusts his forecast that inflation will
moderate as the rapid gains in energy prices subside, and wants
to give the economy a chance, he could hold off tightening
monetary policy until the post-election meeting on December 16.

"They're not going to do anything in October, a week before
the election, so I think they are on hold," said John Silvia,
chief economist at Wachovia, the fourth-largest U.S. bank.

(Additional reporting by Emily Kaiser in Washington,
editing by Maureen Bavdek)

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Oil market oversupplied but not wise to cut: Qatar (Reuters)

Sunday, June 29th, 2008 | Finance News

MADRID (Reuters) -
Oil markets are oversupplied but it
would not be wise for any OPEC exporter to tighten the taps
given the risk of exacerbating prices, Qatari Oil Minister
Abdullah al-Attiyah said on Sunday.

Attiyah's remarks came after Libya's most senior oil
official said on Thursday he was studying the possibility of
reducing output in response to a U.S. threat to sue OPEC
members
, although he said the North African country had no
concrete plans to do so for now.

"It is not wise today to cut supplies even though there is
a surplus because we do not want to create a psychological
problem," Attiyah told Reuters. "I'm not in favour of it at
all. We want to try to help to ease the psychological heat."

But the Qatari minister criticised a move by U.S.
politicians to sue the Organization of the Oil Exporting
Countries
if the oil club did not pump an amount of oil that
Washington sees sufficient.

"The Congress should look to increase exploration inside
the United States," Attiyah said. "It is strange to ask what I
should produce. It's an issue of sovereignty."

The U.S. House of Representatives has passed a bill
allowing the Justice Department to sue OPEC members for
limiting oil supplies and working together to set crude prices.

The Senate has yet to vote on it and the White House has
said it would veto the bill.

Attiyah said if enacted, the measure could create a problem
for the U.S. market as many producers would avoid U.S. buyers.

"You will see a lot of oil suppliers will avoid the
American market and you will create another big problem."

OPEC's biggest exporter Saudi Arabia has announced plans to
hike output to 9.7 million barrels per day (bpd) -- the fastest
pace in decades -- but some consumer economies blame the oil
exporter group for doing too little to combat the rally.

Oil producers have to consider their reservoirs'
productivity for the long run and not only supply and demand
factors
as they manage production levels, said Attiyah.

"Sometimes I have to think carefully in terms of reservoir
management. I do not want to damage all the reservoirs. We
produce to satisfy the whole world but not at the cost of our
reserves," he said.

Record oil prices are putting pressure on the global
economy, saddling companies and consumers around the world with
higher energy costs and triggering protests from farmers in
Spain to students in Nepal.

Attiyah said oil prices were detached from market
fundamentals.

"There is no coordination between supplies and the oil
price
. We believe that the market is not facing any shortage of
supplies at the moment. There are some cargoes in floating
storage. More crude will not benefit the market.

"I never get a call from my customers asking for more
supply but we always hear concerns about high oil prices. This
shows there is no correlation between the oil price and
supplies."

(Writing by Inal Ersan; Editing by Ruth Pitchford)

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Santander has over 2 pct of Monte Paschi: report (Reuters)

Sunday, June 29th, 2008 | Finance News

MILAN (Reuters) -
Bank Santander (SAN.MC) has over 2
percent of Banca Monte dei Paschi di Siena (BMPS.MI), the
Italian mid-sized lender which bought Antonveneta bank from the
Spanish giant, Il Messaggero newspaper reported on Sunday.

"The Spanish bank should make it official within a few days
that it has a notifiable stake," Il Messaggero said, quoting
sources close to Santander.

Monte Paschi declined to comment. No-one at Santander was
available to comment.

Under rules laid down by Italian bourse regulator Consob,
stakes above 2 percent in a listed company must be disclosed by
investors.

Monte Paschi is controlled by a banking foundation with a
53 percent stake.

The two banks have been in talks about possible cooperation
after they closed the deal for Monte Paschi to buy Antonveneta
for 9 billion euros ($14.17 billion).

(Reporting by Jo Winterbottom; Editing by Ruth Pitchford)

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