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Wednesday, April 8, 2015

New Base For FF Rate, #FLIR FCPA Violations and A Speech From Governor Powell

  • The biggest event today was the release of the FOMC Minutes. Two things became apparent: 1) the Fed reacts to the public's reaction to the Fed, and 2) Yellen may be more progressive on the timing of the liftoff date than the majority of her FOMC peers, except for Powell -- though this only became evident in his speech today. Either way, one thing the minutes did reveal are the actual mechanics behind the rate increase -- hint: it involves using IOER as a cap and RPPs as a floor. 
  • Liberty Street Economics, FRB NY, published a very interesting article today titled The FR 2420 Data Collection: A New Base for the Fed Funds Rate. It involves making changes to the way the fed funds rate is calculated using a new data collection system. Changes provide bank-to-bank transactions which makes the data more accurate.
  • Liberty Street Economics, FRB NY, also published an article titled From the Vault: Separating News and Noise … and Jokes. The piece, by Carlos Carvalho, Nicholas Klagge, and Emanuel Moench discusses the effect of news, real or not, on stock price. They use a compelling story about United Airlines as an example. Evidently, the stock declined 76% after a six-year-old article resurfaced about the company's 2002 bankruptcy by a journalist that thought it was a new story. It took 7 days for trading to rebound. 
  • The SEC charged Oregon-based FLIR (FLIR) Systems Inc., which develops infrared technology, with violating the Foreign Corrupt Practices Act (FCPA). The charges allege that FLIR earned more than $7 million in profits from sales influenced by improper gifts to influential foreign officials. Gifts include trips around the world with stops in Casablanca, Paris, Dubai, Beirut, and New York City.  The company has agreed to settle the SEC’s charges by paying more than $9.5 million. 
  • Fed Governor Jerome H. Powell gave a speech at the C. Peter McColough Series on International Economics Council on Foreign Relations in New York. No surprise, the speech was on monetary policy. Powell is clearly aligned with Yellen on the need to raise rates sooner rather than later. In his speech he gives the same warnings about "economic lags" as Yellen did in a speech she gave on March 27 to the FRB of San Francisco. "Monetary policy," Powell says, "works with long and variable lags, so rate increases need to begin well before we reach those goals." In other words, rate increases need to start in June.