India less vulnerable to external shocks

The CAD in the first half of current fiscal stood at 1.4 per cent of GDP, lower than 1.8 per cent in the same period last fiscal.
NEW DELHI: Indian economy is less vulnerable to external shocks as it is mainly driven by household consumption and government spending, and not dependent on hot money which can move out quickly, Standard & Poor’s Rating Services said on Tuesday.

The US-based rating agency expects the current account deficit (CAD), which is the difference between inflow and outflow of foreign exchange, to remain at a modest level of 1.4 per cent at the end of current fiscal and would continue at similar level till 2018.

“We see India as having limited vulnerability to external economic or financial shocks. This is because growth in the economy is mainly driven by domestic factors, such as household consumption and government spending.

“At the same time this is a country that has low reliance on external savings to fund its growth. In other words, the banks are mainly deposit funded and don’t rely on wholesale funding to grow their loan books,” S&P Rating Services India Sovereign Analyst Kyran Curry told PTI.

He said India’s capital markets are diversified and deep enough for companies to raise funding.

“Another favourable aspect of India external settings is that it is generally not subject to hot money inflows that can turn into outflows with shifts in investor sentiment. As such we see the external risks for India to be relatively contained,” Curry said.

He said while export growth may be disappointing, the current account deficit likely to be a modest 1.4 per cent in 2015, with similar levels through 2018.

“Our forecasts are partly informed by our view of increased monetary credibility, which dampens the demand for monetary gold imports. In addition, we expect India to fund this deficit mostly with non-debt, creating inflows,” Curry added.

The CAD in the first half of current fiscal stood at 1.4 per cent of GDP, lower than 1.8 per cent in the same period last fiscal. For full 2014-15 fiscal, the CAD stood at 1.3 per cent of GDP.

58 Facts About The US Economy In 2015 You Won’t Believe Are True!

globe world finance

The world didn’t completely fall apart in 2015, but it is undeniable that an immense amount of damage was done to the U.S. economy.

This year the middle class continued to deteriorate, more Americans than ever found themselves living in poverty, and the debt bubble that we are living in expanded to absolutely ridiculous proportions.

Toward the end of the year, a new global financial crisis erupted, and it threatens to completely spiral out of control as we enter 2016.  Over the past six months, I have been repeatedly stressing to my readers that so many of the exact same patterns that immediately preceded the financial crisis of 2008 are happening once again, and trillions of dollars of stock market wealth has already been wiped out globally.

Some of the largest economies on the entire planet such as Brazil and Canada have already plunged into deep recessions, and just about every leading indicator that you can think of is screaming that the U.S. is heading into one.  So don’t be fooled by all the happy talk coming from Barack Obama and the mainstream media.  When you look at the cold, hard numbers, they tell a completely different story.  The following are 58 facts about the U.S. economy from 2015 that are almost too crazy to believe…

#1 These days, most Americans are living paycheck to paycheck.  At this point 62 percent of all Americans have less than 1,000 dollars in their savings accounts, and 21 percent of all Americans do not have a savings account at all.

#2 The lack of saving is especially dramatic when you look at Americans under the age of 55.  Incredibly, fewer than 10 percent of all Millennials and only about 16 percent of those that belong to Generation X have 10,000 dollars or more saved up.

#3 It has been estimated that 43 percent of all American households spend more money than they make each month.

#4 For the first time ever, middle class Americans now make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.

#5 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.

#6 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percent between 2001 and 2013.

#7 In 1970, the middle class took home approximately 62 percent of all income. Today, that number has plummeted to just 43 percent.

#8 There are still 900,000 fewer middle class jobs in America than there were when the last recession began, but our population has gotten significantly larger since that time.

#9 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

#10 For the poorest 20 percent of all Americans, median household wealth declined from negative 905 dollars in 2000 to negative 6,029 dollars in 2011.

#11 A recent nationwide survey discovered that 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.

#12 Since hitting a peak of 69.2 percent in 2004, the rate of homeownership in the United States has been steadily declining every single year.

#13 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.

#14 Traditionally, entrepreneurship has been one of the primary engines that has fueled the growth of the middle class in the United States, but today the level of entrepreneurship in this country is sitting at an all-time low.

#15 For each of the past six years, more businesses have closed in the United States than have opened.  Prior to 2008, this had never happened before in all of U.S. history.

#16 If you can believe it, the 20 wealthiest people in this country now have more money than the poorest 152 million Americans combined.

#17 The top 0.1 percent of all American families have about as much wealth as the bottom 90 percent of all American families combined.

#18 If you have no debt and you also have ten dollars in your pocket, that gives you a greater net worth than about 25 percent of all Americans.

#19 The number of Americans that are living in concentrated areas of high poverty has doubled since the year 2000.

#20 An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.

#21 According to the U.S. Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now.

#22 In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.

#23 According to Kathryn J. Edin and H. Luke Shaefer, the authors of a new book entitled “$2.00 a Day: Living on Almost Nothing in America“, there are 1.5 million “ultrapoor” households in the United States that live on less than two dollars a day. That number has doubled since 1996.

#24 46 million Americans use food banks each year, and lines start forming at some U.S. food banks as early as 6:30 in the morning because people want to get something before the food supplies run out.

#25 The number of homeless children in the U.S. has increased by 60 percentover the past six years.

#26 According to Poverty USA, 1.6 million American children slept in a homeless shelter or some other form of emergency housing last year.

#27 Police in New York City have identified 80 separate homeless encampments in the city, and the homeless crisis there has gotten so bad that it is being described as an “epidemic”.

#28 If you can believe it, more than half of all students in our public schools are poor enough to qualify for school lunch subsidies.

#29 According to a Census Bureau report that was released a while back, 65 percent of all children in the U.S. are living in a home that receives some form of aid from the federal government.

#30 According to a report that was published by UNICEF, almost one-third of all children in this country “live in households with an income below 60 percent of the national median income”.

#31 When it comes to child poverty, the United States ranks 36th out of the 41 “wealthy nations” that UNICEF looked at.

#32 An astounding 45 percent of all African-American children in the United States live in areas of “concentrated poverty”.

#33 40.9 percent of all children in the United States that are being raised by a single parent are living in poverty.

#34 There are 7.9 million working age Americans that are “officially unemployed” right now and another 94.4 million working age Americans that are considered to be “not in the labor force”.  When you add those two numbers together, you get a grand total of 102.3 million working age Americans that do not have a job right now.

#35 According to a recent Pew survey, approximately 70 percent of all Americans believe that “debt is a necessity in their lives”.

#36 53 percent of all Americans do not even have a minimum three-day supply of nonperishable food and water at home.

#37 According to John Williams of shadowstats.com, if the U.S. government was actually using honest numbers the unemployment rate in this nation would be 22.9 percent.

#38 Back in 1950, more than 80 percent of all men in the United States had jobs.  Today, only about 65 percent of all men in the United States have jobs.

#39 The labor force participation rate for men has plunged to the lowest level ever recorded.

#40 Wholesale sales in the U.S. have fallen to the lowest level since the last recession.

#41 The inventory to sales ratio has risen to the highest level since the last recession.  This means that there is a whole lot of unsold inventory that is just sitting around out there and not selling.

#42 The ISM manufacturing index has fallen for five months in a row.

#43 Orders for “core” durable goods have fallen for ten months in a row.

#44 Since March, the amount of stuff being shipped by truck, rail and air inside the United States has been falling every single month on a year over year basis.

#45 Wal-Mart is projecting that its earnings may fall by as much as 12 percentduring the next fiscal year.

#46 The Business Roundtable’s forecast for business investment in 2016 has dropped to the lowest level that we have seen since the last recession.

#47 Corporate debt defaults have risen to the highest level that we have seensince the last recession.  This is a huge problem because corporate debt in the U.S. has approximately doubled since just before the last financial crisis.

#48 Holiday sales have gone negative for the first time since the last recession.

#49 The velocity of money in the United States has dropped to the lowest level ever recorded.  Not even during the depths of the last recession was it ever this low.

#50 Barack Obama promised that his program would result in a decline in health insurance premiums by as much as $2,500 per family, but in reality average family premiums have increased by a total of $4,865 since 2008.

#51 Today, the average U.S. household that has at least one credit card has approximately $15,950 in credit card debt.

#52 The number of auto loans that exceed 72 months has hit at an all-time high of 29.5 percent.

#53 According to Dr. Housing Bubble, there have been “nearly 8 million homes lost to foreclosure since the homeownership rate peaked in 2004″.

#54 One very disturbing study found that approximately 41 percent of all working age Americans either currently have medical bill problems or are paying off medical debt.  And collection agencies seek to collect unpaid medical bills from about 30 million of us each and every year.

#55 The total amount of student loan debt in the United States has risen to a whopping 1.2 trillion dollars.  If you can believe it, that total has more than doubled over the past decade.

#56 Right now, there are approximately 40 million Americans that are paying off student loan debt.  For many of them, they will keep making payments on this debt until they are senior citizens.

#57 When you do the math, the federal government is stealing more than 100 million dollars from future generations of Americans every single hour of every single day.

#58 An astounding 8.16 trillion dollars has already been added to the U.S. national debt while Barack Obama has been in the White House.  That means that it is already guaranteed that we will add an average of more than a trillion dollars a year to the debt during his presidency, and we still have more than a year left to go.

What we have seen so far is just the very small tip of a very large iceberg.  About six months ago, I stated that “our problems will only be just beginning as we enter 2016″, and I stand by that prediction.

We are in the midst of a long-term economic collapse that is beginning to accelerate once again.  Our economic infrastructure has been gutted, our middle class is being destroyed, Wall Street has been transformed into the biggest casino in the history of the planet, and our reckless politicians have piled up the biggest mountain of debt the world has ever seen.

Anyone that believes that everything is “perfectly fine” and that we are going to come out of this “stronger than ever” is just being delusional.  This generation was handed the keys to the finest economic machine of all time, and we wrecked it.  Decades of incredibly foolish decisions have culminated in a crisis that is now reaching a crescendo, and this nation is in for a shaking unlike anything that it has ever seen before.

 

Need to grow 1.5% faster to sustain wage hikes, sops: Arun Jaitley

Indian economy, Arun Jaitley, Indian GDP, Bharatiya Mazdoor Sangh, BMS, Seventh Pay Commission, OROP, indian express

Indian economy needs to grow by extra 1-1.5 percentage points to sustain wage hike and other benefits given to workers and the poor, finance minister Arun Jaitley said on Wednesday.

“Our GDP growth of 7.5 per cent is at a time when the world is experiencing global slowdown. We need to increase our growth rate. We have to at least increase it by 1-1.5 per cent,” he said at the felicitation function organised by Bharatiya Mazdoor Sangh (BMS).

India’s Gross Domestic Product grew at 7.2 per cent in first half of 2015-16. Finance ministry’s Mid Year Economic Analysis estimates GDP growth between 7 per cent and 7.5 per cent in the current financial year.

“In the coming year, there would be burden of Rs 1.02 lakh crore of Seventh Pay Commission, OROP (One Rank One Pension) burden is also there. That burden can be sustained only when there is increase in economic activity. Because of increased economic activity, government revenue and resources will go up,” he said.

The Seventh Pay Commission, headed by Justice AK Mathur, submitted its report to the government last month, recommending 23.55 per cent overall hike in pay, allowances and pensions of Central government employees with effect from January 1, 2016. This will lead to the Centre’s salary bill increasing by Rs 1,02,100 crore in 2016-17.

The government is ready to have dialogue with the trade unions with regard to wage increase, he said.

He said the government’s view is that the benefits of economic development should first accrue to labourers and the poor. He said minimum wages of labour should be at least respectable and take care of inflation.

Meanwhile, speaking to reporters later in the day, Jaitley said the government has to rely mainly on public investment and foreign direct investment at a time when private sector investment was growing slowly and agriculture growth was not encouraging.

“Any economy requires multiple engines to pull it. Global tailwinds can be the engines of growth, which unfortunately they have not. Private investment can be an engine of growth, which it has not. Bumper agriculture can be an engine of growth, which it has not,” he said.

“Therefore, we have to rely on other engines of growth, which are predominantly public investment, foreign direct investment, private investment in some areas like start-ups, telecom and then some increase in consumption,” he added.

Jaitley said that good monsoon can add cutting edge to growth numbers. He said low global crude oil prices have been a blessing in disguise for the government, helping to bolster resources for higher investment. “The silver lining in this has been oil prices and this is enabling us to fund public investment, the principal engine of growth,” he said.

‘Shrinking Cong strength will make GST happen’

New Delhi: Hitting back at Congress’ comment that even the trinity of Gods will not facilitate rollout of Goods and Services Tax (GST) from April 1, finance minister Arun Jaitley on Wednesday said shrinking strength of Congress in Rajya Sabha will make GST a reality, as MPs vote in Parliament, not Gods.

“Congress has said, trinity of Gods cannot make GST happen soon. Gods don’t vote, MPs do and shrinking strength of Congress in Rajya Sabha can make it (GST) happen,” Jaitley said.

Jaitley said most states are on board on GST and it was probable to implement GST in middle of the year. “A part of obstructionism (by Congress) was to stop growth. Otherwise, there cannot be volte face of this kind and secondly you cannot concoct those three reasons, which never existed,” FM said. The Winter Session of Parliament was a washout, with the government unable to resolve the impasse over GST. Lok Sabha and Rajya Sabha passed 13 and 9 bills, respectively during the Winter Session of Parliament.

Preventing Sovereign Debt Restructuring

At a recent private conference on sovereign debt restructuring, an old friend argued that, in addition to talking about what to do once a country has crossed a tipping point and needs to restructure its debt, efforts should also be made at prevention. It is, of course, a good point; one on which I have written in the past. His comment got me thinking about an idea I had a decade or so ago, in those halcyon days before the global crisis.

The concern then was that debt relief initiatives, which improved the debt-carrying capacity of many highly-indebted countries, created space for others to fill. Export credit agencies and private sector lenders, recognizing an opportunity to grow their balance sheets, rushed to lend to these countries, leading to widespread concerns that a number of countries whose longer-term growth prospects had been constrained by high levels of indebtedness prior to debt relief would, once again, take on too much debt and encounter debt-servicing problems when the global economy slows, interest rates rise, and commodity prices fall.

As things turned out, the global crisis of 2007-2010 didn’t play out the way many observers (including me) thought it would. The crisis was met with extraordinary counter-cyclical stimulus measures, with China leading the way. This stimulus kept the global commodity ‘super cycle’ going, fueling a quick recovery for developing countries. At the same time, the crisis led advanced country central banks to take equally extraordinary measures to prevent the global financial system seizing up. Global interest rates fell to (effectively) zero. All things considered, it was a good crisis for developing countries and emerging markets.

That being said, the policy issue I was pondering in the spring of 2006 was how to prevent export credit agencies (ECAs) from excessive lending that could impair future development. At the time, there were fears that some ECAs may have been pursuing non-economic (or “strategic”) objectives, such as securing control of natural resources or market share. If other ECAs didn’t play the game, the argument goes, they would lose access to key resources or find markets closed to them.

I wanted to address the collective action problem associated with lending to countries that had low levels of indebtedness owing to debt relief initiatives, but whose medium-term economic prospects remain uncertain. By taking on too much debt, the borrower increases the probability of default on all lenders. Moreover, because the return on previously issued fixed rate debt does not respond to this deterioration in the expected return, the borrower has an incentive to take on too much debt to invest in excessively risky projects. The collective action problem arises because, while lenders have a collective incentive to limit new lending, each has an individual incentive to lend as much as quickly as possible before other lenders do so. In this environment, the likelihood of a misallocation of investment resources must be judged to be high.

Of course, this problem is not new: it is encountered in virtually every lending situation. In the domestic context, legal arrangements have evolved to attempt to align incentives such that borrowers are penalized for taking on excessive debt loads. These include contractual provisions, such as parri passu and acceleration clauses, bond covenants restricting the range of investment projects financed by borrowing, and the enforcement of priority of claims. Such legal restrictions binding the interests of private lenders are reasonably successful domestically, though not without the threat of protracted legal disputes.

At the international level, however, contractual provisions are much less effective given the absence of a mutually agreeable process for the timely restructuring and adjudication of conflicting claims. The question is whether some form of ex ante government action.

One option to deal with this problem would be to secure agreement among ECAs on priorities of claim in the event of future debt-servicing difficulties. The idea would be to relax the “joint and several” rule that has governed past Paris Club restructurings by tying restructurings of particular ECAs to their relative contribution to the debt load. The earlier a credit is made, the greater the “protection” it would receive in any subsequent debt restructuring. Conceptually, the process is relatively straightforward. Paris Club members would agree on the extent of NPV reduction needed to restore sustainability (on the assumption that the country in question maintains a debt-servicing moratorium on non-Paris Club creditors). This quantum of debt relief to be provided by Paris Club creditors would then be distributed on a sliding scale that punishes creditors that came into the game late, pushing the country over the sustainable debt threshold.

This approach has a number of noteworthy features:

  • First, it would tend to align incentives by forcing lenders to consider the potential consequences of their lending. This would hopefully result in a rising cost of capital schedule faced by potential borrowers. A higher cost of capital, meanwhile, would create incentives for the borrower to ration excessive debt accumulation and take actions to ensure that the funds are invested wisely.
  • Second, it provide strong incentives for lenders to exercise due diligence in monitoring the use of borrowed funds-including adopting a probabilistic approach to loan evaluation (what is the probability that current high commodity prices will fall over the life of the loan, etc.).
  • Third, it would create an incentive for borrowing countries to be more forthcoming in revealing their outstanding obligations.
  • Fourth, it would provide an incentive for non-members of the Paris Club to cooperate with the international community (given the fact that Paris Club debt relief would be predicated on a continuing standstill on interest payments to non-members).

At the same time, however, the proposal could be criticized as not giving borrowers sufficiently strong incentives to observe the bonding role of debt. This is indeed the case. But it is also true of the status quo. The suggestion here, if successful, would at least result in a rising cost of capital to the borrower. Moreover, the proposed arrangements could be further strengthened by securing ex ante agreement among Paris Club members that any country that does seek debt relief from the Club automatically goes off cover for some specified period of time. Member countries could make loans (as at present) but they could not call on Paris Club “solidarity” in recovering amount owing when the country goes back on cover.

*****

The discussion here is obviously an abstraction, given its static nature. Debt-servicing capacity changes over time in response to both external (commodity price) shocks and domestic factors (policy frameworks, the nature of the investments made, etc.). Regardless, a very large stock of debt has been contracted over the past decade; some of it will not be repaid. How quickly and efficiently it is restructured will have an impact on the global economy. This fact underscores the ongoing efforts to improve the framework for restructuring sovereign debts. At that same time, it should also focus efforts on preventing the need for future sovereign debt restructuring going forward by better aligning incentives.

Fallen Shibboleths and Victorian Virtues

I was a discussant at a CIGI-Institute for Policy Dialogue conference on sovereign debt restructuring at Columbia University in September hosted by Joe Stiglitz and Domenico Lombardi. In my remarks on one of papers, I identified a key challenge in the global economy: insufficient global aggregate demand that generates deflationary pressures.

This challenge partly reflects the inter-temporal optimization decisions of aging populations in the advanced economies who are saving, as they must, to sustain consumption levels in retirement. These savings reflects an equilibrium condition and it is not clear that there is a role for policy.

In the prevailing environment of uncertainty, which some might refer to as a “New Age of Uncertainty,” these savings are being sucked into the so-called “safe assets” of highly rated, liquid issues of sovereign issuers that form the collateral foundations on which the modern international financial system is built. The result is record low interest rates on U.S. Treasuries, German Bunds and the Swiss Bonds. These low interest rates are clearly beneficial for those governments, but they create problems for the pension plans that discount their future pension obligations at a lower rate. For pension funds (life insurance companies) these low interest rates create a gap between the actuarial value of liabilities and assets.

In normal times, this situation wouldn’t be particularly problematic; higher demand fueled by low interest rates would close output gaps and eventually generate inflation that would raise nominal interests. But, as pointed out previously, here, inflation today isn’t a problem. Indeed, inflation-targeting central banks in the advanced economies are struggling to raise inflation to their pre-announced inflation targets. Central banks are at risk of losing credibility not from temporizing with too much inflation, but from failing to raise inflation to their target levels.

The world is, seemingly, not in normal times. The explanation might be that insufficient aggregate demand that I spoke of at the conference in Columbia. In the New Age of Uncertainty private investment is down as firms exercise the option value of waiting. And rather than investing in productive public infrastructure that would stimulate demand and generate growth, governments mindful of aging populations and high debt-to-GDP ratios have balked. The result has been a Keynesian paradox of thrift, as higher savings contributes to insufficient global aggregate demand: What is rational on the individual level is collectively irrational.

Here’s the rub: efforts to prevent higher debt ratios in the short-term may be harmful to fiscal sustainability over the long-term, as growth remains uneven and economic prospects clouded by uncertainty. A ratio can be reduced by working on both the numerator and the denominator. Unfortunately, fiscal austerity to reduce the former weakens the latter. In the current state, governments able to issue very long-dated debt at very low interest rates could invest in the infrastructure and help break the paradox of thrift that seems to be gripping advanced economies.

If not them, who? If not now, when?

Seventy years ago, economies were similarly suffering from the paradox of thrift. At the time, Keynes attributed the problem to a misguided faith in Says Law—the fallacy that supply creates its own demand—and Victorian virtues of household economy. Seven decades later, facing similar circumstances, the problem may be the ‘echo’ of the fallen shibboleths of Say’s Law and Victorian virtues of household economy.

Dollar edges higher ahead of U.S. durable goods report

© Reuters. U.S. dollar gains ahead of data deluge

The dollar edged higher against its major rivals in pre-holiday trade on Wednesday, as investors awaited the release of U.S. durable goods data due later in the day for further indications on the strength of the economy.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.2% at 98.41 during European morning hours.

The U.S. is to produce data on durable goods orders at 8:30AM ET on Wednesday, amid expectations for a decline of 0.6% in November, following a gain of 2.9% a month earlier, while core orders are forecast to rise 0.1% after increasing 0.5% in October.

In addition, the U.S. is release reports on new home sales, consumer sentiment and crude oil inventories.

Earlier in the day, data showed that U.S. personal spending inched up by a seasonally adjusted 0.3% last month, meeting forecasts. Personal spending for October was revised down to a flat reading from a previously reported gain of 0.1%. Consumer spending is the single biggest source of U.S. economic growth, accounting for as much as two-thirds of economic activity.

The figure, which was to be made public at 8:30AM ET Wednesday along with the agency’s report on personal income, was released early on the Bureau of Economic Analysis’ website.

On Tuesday, data said the U.S. economy grew 2.0% in the third quarter, downwardly revised from a preliminary estimate of 2.1%, but above expectations for 1.9%. A separate report showed that existing home sales tumbled 10.5% to a 19-month low of 4.76 million units in November from 5.32 million a month earlier.

Investors also continued to focus on the crude oil market, as prices ticked higher for the second straight day, boosting global stocks and supporting sentiment.

Trading volumes are expected to remain light as many traders already closed books before the end of the year, reducing liquidity in the market and increasing volatility. U.S. markets close early Thursday, Christmas Eve, and are shut Friday for Christmas Day.

Market Wrap: Stocks Climb as Fed Puts Dec. Rate Hike in Play

Financial Markets Wall StreetNEW YORK — U.S. stocks ended sharply higher Wednesday after a volatile session as the Federal Reserve gave a vote of confidence in the U.S. economy by signaling a December interest rate hike was still on the table.

S&P financials, which benefit from higher borrowing rates, shot up following the Fed statement and led sector gains. The financial index ended up 2.4 percent, its biggest percentage gain in seven weeks. The KBW Nasdaq regional bank index jumped 4.1 percent.

S&P utilities, which tend to do worse when interest rates are rising, fell 1.1 percent and led S&P sector declines.

The Fed left rates unchanged, as expected, and, in a direct reference to its next meeting, put a December rate hike firmly in play. It also downplayed global economic headwinds in its statement.

Stocks initially sold off following the statement, with the S&P 500 erasing close to a 1 percent gain, but quickly rebounded to end at the day’s highs as investors saw the statement as a sign the Fed has confidence the U.S. economy can sustain a rate hike.

“Obviously the first move [in stocks] is down, which is conventional wisdom. However, I do like the idea of the Fed having more confidence in the economy, less concerned about the global backdrop and willing to ring the bell on the long-term health of the U.S. economy with a rate hike,” said Michael Marrale, head of research, sales and trading at ITG in New York.

The Fed hasn’t raised rates in nearly a decade.

The Dow Jones industrial average (^DJI) rose 198.09 points, or 1.1 percent, to 17,779.52, the Standard & Poor’s 500 index (^GSPC) gained 24.46 points, or 1.2 percent, to 2,090.35, its highest in more than two months.

The Nasdaq composite (^IXIC) added 65.55 points, or 1.3 percent, to 5,095.69, while the Nasdaq 100 index of biggest non-financial names rose 0.9 percent to 4,678.57, just shy of a 15-year high.

Movers and Shakers

A 4.1 percent gain in Apple (AAPL) shares to $119.27 also helped support indexes a day after stronger-than-expected results.

The company sold 48 million iPhones in the latest quarter and posted a near doubling of revenue from China, allaying concerns about its business in the world’s second-largest economy.

On the flip side, Twitter (TWTR) shares fell 1.5 percent to $30.87 while Akamai Technologies (AKAM) dropped 16.7 percent to $62.91, Both reported disappointing results late Tuesday.

The S&P energy sector snapped a three-day losing streak, ending up 2.2 percent, after a sharp rally in crude oil prices .

After the bell, shares of GoPro (GPRO) dropped 15.2 percent to $25.62 following its results.

Advancing issues outnumbered declining ones on the NYSE by 2,428 to 645, for a 3.76-to-1 ratio on the upside; on the Nasdaq, 2,252 issues rose and 605 fell for a 3.72-to-1 ratio favoring advancers.

The S&P 500 posted 35 new 52-week highs and six new lows; the Nasdaq recorded 155 new highs and 82 new lows.

About 8.5 billion shares changed hands on U.S. exchanges, well above the 7.1 billion daily average for the past 20 trading days, according to Thomson Reuters (TRI) data.

What to watch Thursday:

  • At 8:30 a.m. Eastern time, the Labor Department releases weekly jobless claims, and the Commerce Department releases third-quarter gross domestic product.
  • At 10 a.m., Freddie Mac releases weekly mortgage rates, and the National Association of Realtors releases pending home sales index for September.

Earnings Season
These selected companies are scheduled to report quarterly financial results:

  • Aetna (AET)
  • Altria Group (MO)
  • ConocoPhillips (COP)
  • Goodyear Tire & Rubber Co. (GT)
  • Johnson Controls (JCI)
  • LinkedIn (LNKD)
  • MasterCard (MA)
  • Starbucks (SBUX)
  • Teva Pharmaceutical (TEVA)
  • Time Warner Cable (TWC)

Fed Keeps Rate at Record Low but Will Consider December Hike

Views Of The Federal Reserve As Markets Watch For Interest Rate LiftoffWASHINGTON — The Federal Reserve is keeping its key short-term interest rate at a record low in the face of a weak global economy, slower U.S. job growth and subpar inflation. But it suggested the possibility of a rate hike in December.

A statement the Fed issued Wednesday said it would monitor the pace of hiring and inflation to try to determine “whether it will be appropriate to raise the target range” for its benchmark rate at its next meeting.

It marked the first time in seven years of record-low rates that the central bank has raised the possibility that it could raise its key rate from near zero at its next meeting.

It has to be immensely frustrating … The global economy is still decelerating, and we’re seeing a softening of growth domestically.

In a further sign that a hike could occur in December, the Fed’s policymakers sounded less gloomy about global economic pressures. They removed a sentence from their September statement that had warned of global pressures stemming from a sharper-than-expected slowdown in China.

“They implied they’d do it this year,” Patrick O’Keefe, director of economic research at the accounting firm CohnReznick, said after the Fed issued its statement after its latest policy meeting. “It has to be immensely frustrating … The global economy is still decelerating, and we’re seeing a softening of growth domestically.”

Stocks gave up some of their gains after the Fed’s mid-afternoon announcement, and the yield on the 10-year Treasury note rose slightly.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects a December rate increase if the jobs reports for October and November improve over September, when hiring slowed.

“Some combination of payrolls, unemployment and wages signaling continued improvement will be enough,” Shepherdson wrote in a note to clients.

Still, the Fed noted that the economy is expanding only modestly. And in a nod to recent weaker data, the policymakers signaled some concern about the pace of hiring.

While many Fed officials have signaled a desire to raise rates before year’s end, tepid economic reports in recent weeks had led some analysts to predict no hike until 2016.

The Fed’s statement Wednesday was approved on a 9-1 vote, with Jeffrey Lacker, president of the Fed’s Richmond regional bank, dissenting. As he had in September, Lacker favored a quarter-point rate increase.

The Fed has kept the target for its benchmark funds rate at a record low in a range of zero to 0.25 percent since December 2008. After the September meeting, Yellen noted that 13 of 17 Fed officials expected the first rate hike to occur this year. But some economic reports since then have been lackluster, including the slowdown in job growth last month.

Some of the U.S. weakness has occurred because of a global slump, led by China, that’s inflicted wide-ranging consequences. U.S. job growth has flagged. Wages and inflation are subpar. Consumer spending is sluggish. Investors are nervous. And manufacturing is being hurt by a stronger dollar, which has made U.S. goods pricier overseas.

The Fed cut its benchmark rate to near zero during the Great Recession to encourage borrowing and spending to boost a weak economy. Since then, hiring has significantly strengthened, and unemployment has fallen to a seven-year low of 5.1 percent.

But the Fed is still missing its target of achieving annual price increases of 2 percent, a level it views as optimal for a healthy economy.

At the start of the year, a rate hike was expected by June. A harsh winter, though, slowed growth. And then in August, China announced a surprise devaluation of its currency. Its action rocked markets and escalated fears that the world’s second-largest economy was weaker than thought and could derail growth in the United States.

Uncertainty was too high, Fed officials decided, for a rate hike in September.

Since then, the outlook has dimmed further, with lower job gains and weak retail sales and factory output. Also, inflation has fallen further from the 2 percent target because of falling energy prices and a stronger dollar, which lowers the cost of imports.

This week’s Fed meeting followed decisions by other major central banks — from Europe to China and Japan — to pursue their own low-rate policies. Against that backdrop, a Fed rate hike would boost the dollar’s value and could squeeze U.S. exporters of farm products and factory goods by making them costlier overseas.

Congress may help if a budget deal announced this week wins congressional approval. That could avert a government shutdown and raise the government’s borrowing limit — two threats that concern Fed policymakers.

More Thanksgiving Travelers; Don’t Get Stuck at the Airport

Weather impacts Thanksgiving travel.NEW YORK — A stronger economy and lower gas prices mean Thanksgiving travelers can expect more congested highways this year.

During the long holiday weekend, 46.9 million Americans are expected to go 50 miles or more from home, the highest number since 2007, according to travel agency and car lobbying group AAA. That would be a 0.6 percent increase over last year and the seventh straight year of growth.

While promising for the travel industry, the figure is still 7.3 percent short of the 50.6 million high point reached in 2007, just before the recession.

Like on every other holiday, the overwhelming majority of travelers — almost 90 percent — will be driving. And they will be paying much less at the pump.

AAA says the average retail price for gasoline is now $2.15 a gallon, 74 cents cheaper than the same time last year. With the average car getting 18.5 mpg, that means a family driving 300 miles will save $12 in fuel this holiday.

Airlines for America, the lobbying group for several major airlines, forecasts 25.3 million passengers will fly on U.S. airlines, up 3 percent from last year. (AAA’s forecast shows fewer numbers of fliers because it looks at a five-day period while the airline group looks at the 12 days surrounding Thanksgiving.)

Airfare is basically flat compared to last year, with a mere 0.3 percent or 69 cent average increase, according to the Airlines Reporting Corp., which processes ticket transactions for airlines and travel agencies.

Traveler counts are little fuzzier when it comes to other forms of transport.

Bus use will continue to grow, according to the Chaddick Institute for Metropolitan Development at DePaul University. The school expects 1.2 million to take buses, up 1 percent to 2 percent from last year. However, AAA says travel by cruises, trains and buses will decrease 1.4 percent this Thanksgiving to 1.4 million travelers.

Air Travel Tips

Since flying can often cause the most disruptions and leave travelers feeling helpless, here are some tips to cope with any delays. Flights are packed around the holidays and if there is any hiccup, the difference between getting home and not can come down to asking the right questions and acting fast.

Delays

  • At the first sign of a serious mechanical problem, call the airline to have it “protect” you on the next flight out. That way if the mechanical problem leads to a cancellation, you are already confirmed on a new flight and can just print a new boarding pass.
  • If you miss your flight connection — or bad weather causes delays — get in line to speak to a customer service representative. But also, call the airline directly. If the phone lines are jammed, try the airline’s overseas numbers. You’ll pay long-distance rates, but might not have to wait. (Add those numbers to your phone now.) Finally, consider sending a Tweet to the airline.
  • Consider buying a one-day pass to the airline lounge. For one thing, there are usually free drinks and light snacks. But the real secret to the lounges is that the airline staffs them with some of its best — and friendliest — ticket agents. The lines are shorter and these agents are magically able to find empty seats. One-day passes typically cost $50 but discounts can sometimes be found in advance online.
  • If weather causes cancellations, use apps like HotelTonight and Priceline to find last-minute hotel discounts for that night. Warning: Many of the rooms are non-refundable when booked, so only lock in once stuck.

Luggage

  • Weigh it at home first. Anything over 50 pounds (40 pounds on some airlines like Spirit) will generate a hefty overweight surcharge, in addition to the checked bag fee.
  • Before your bag disappears behind the ticket counter make sure the airline’s tag has your name, flight number and final destination. Save that sticker they give you — it has a bag-tracking number on it.
  • Place a copy of your flight itinerary inside your suitcase with your cellphone number and the name of your hotel in case the tag is ripped off.
  • If you can’t live without it, don’t check it. It might take days to return a lost bag. Don’t pack medication or outfits for tomorrow’s meeting or wedding. Never check valuables such as jewelry or electronics.
  • Prepare your carry-on bag as if it will be checked. You might not have planned to check your bag, but given today’s crowded overhead bins many fliers don’t have a choice. Pack a small canvas bag inside your carry-on so if you are forced to check it, you can at least keep your valuables with you.

Seats

  • Set up alerts for seat openings. ExpertFlyer.com offers free notifications when a window or aisle seat becomes vacant. For 99 cents, it sends an email if two adjacent seats become available. The service is available for Alaska Airlines, American Airlines, JetBlue Airways, United Airlines and Virgin America but not for Delta Air Lines and some smaller carriers.
  • Check the airline’s website five days before the trip. That’s when some elite fliers are upgraded to first class, freeing up their coach seats. Another wave of upgrades occurs every 24 to 48 hours.
  • Check in 24 hours in advance when airlines start releasing more seats. If connecting, see if seats have opened up 24 hours before the second flight departs.
  • Keep looking for new seats. Even after checking in, seats can be changed at airport kiosks and on some airlines’ mobile applications.

Fed Pushed Toward December Hike Last Month, Despite Concern

Federal Reserve YellenWASHINGTON — A solid core of Federal Reserve officials rallied behind a possible December rate hike at the central bank’s last policy meeting, but central bankers also debated evidence the U.S. economy’s long-term potential may have permanently shifted lower.

After a summer and early fall that saw the Fed rattled by U.S. market volatility and a sell-off in China, “most” participants felt conditions for a rate hike “could well be met by the time of the next meeting,” minutes of the Fed’s Oct. 27-28 meeting released on Wednesday said.

The decision was made to make an unusually direct reference in their post-meeting statement to a possible December rate hike, with only “a couple” of members expressing concerns about setting too strong an expectation of action, according to the minutes. Staff outlined how the Fed had potentially fallen behind in communicating its intentions, with markets pushing expectations of an initial rate hike into next year.

The U.S. financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress.

The language in the October statement drew those expectations quickly back to December.

“The U.S. financial system appeared to have weathered the turbulence in global financial markets without any sign of systemic stress,” the minutes said. “Most participants saw the downside risks arising from economic and financial developments abroad as having diminished and judged the risks to the outlook for domestic economic activity and the labor market to be nearly balanced.”

But despite the faith in the near-term outlook, the Fed also debated what could become a core concern as it enters its first policy tightening cycle in a decade — the underlying potential of the U.S. economy.

The debate took the form of a discussion of the equilibrium real interest rate — the policy rate, net of inflation, that would be consistent with full employment and the Fed’s 2 percent inflation goal. Central to many macroeconomic models, the estimated equilibrium rate forms a barometer of sorts for how far current rates are from “normal,” and how much stimulus the central bank has built into the system.

According to staff estimates, the equilibrium rate likely fell below zero during the crisis, has only recovered a bit, and is “close to zero currently.”

For the Fed that may mean little room to maneuver if it wants to avoid tightening financial conditions too quickly, and may mean that it will never get too far from the zero lower bound.

The concern is serious enough that “several” Fed officials felt it would be “prudent” to plan for other ways to stimulate the economy if low rates become permanently embedded.