Apple recently said it had $252 billion in cash or cash equivalents abroad
Apple Inc. AAPL 1.65% said it would pay a one-time tax of $38 billion on its overseas cash holdings and ramp up spending in the U.S., as it seeks to emphasize its contributions to the American economy after years of taking criticism for outsourcing manufacturing to China.
The world’s most valuable publicly traded company laid out its plans Wednesday in a statement that was full of big-dollar figures, though it said that much of the money reflected Apple’s current pace of spending.
Taxing Foreign Profits
Companies have long sheltered foreign profits offshore. Now the tax bill is coming due. How much will they pay?
Apple said it would invest $30 billion in capital spending in the U.S. over five years that would create more than 20,000 jobs. The total includes a new campus, which initially will house technical support for customers, and $10 billion toward data centers across the country. It also will expand from $1 billion to $5 billion a fund it established last year for investing in advanced manufacturing in the U.S.
All told, Apple said it would directly contribute $350 billion to the U.S. economy over the next five years, with the bulk—about $55 billion this year, for example—coming from ongoing spending on parts and services from U.S. suppliers. That number also includes the federal tax payment and capital spending.
Chief Executive Tim Cook touted the plans as building on Apple’s support for the nation’s economy. “We have a deep sense of responsibility to give back to our country and the people who help make our success possible,” he said in a statement.
The announcement comes after President Donald Trump late last year signed into law a major overhaul of the U.S. tax code, under which companies must pay a one-time tax of 15.5% on overseas profits held in cash and other liquid assets. Apple cited those changes as the reason for its giant tax payment, which it said would likely be the largest of its kind, but didn’t say how much of its $252.3 billion in overseas cash holdings it plans to bring home.
The company said in November that it had earmarked $36 billion to cover deferred taxes on that money, assuming that it would eventually pay U.S. taxes on a portion of it by bringing it home.
Mr. Trump praised Apple’s announcement on Twitter, saying his policies allowed the tech giant “to bring massive amounts of money back to the United States.” He added, “Huge win for American workers and the USA!”
Apple didn’t provide historical comparisons for some of the figures it gave Wednesday. The company previously said it planned $16 billion in capital expenditures world-wide in the fiscal year that ends this September, up from $14.9 billion the previous year. However, Apple doesn’t break out its spending in the U.S., making it difficult to gauge how much of the $30 billion over five years it announced Wednesday is new.
Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., said Apple’s plans are in line with Trump administration goals, but it isn’t clear how many of the commitments are new. And he said the company could deliver on those commitments with existing cash flow—without needing to tap cash holdings.
“It’s a nice number and puts a foot forward in line with where the administration wants to go with adding jobs and building in the U.S.,” he said. But “it’s not clear these investments were impacted in any way by tax reform.”
Apple has faced criticism over the past decade for overseas manufacturing of its iPhones, of which it has sold more than one billion, rather than making them domestically. Mr. Trump during the presidential campaign blasted the company for outsourcing. He later called on Apple to build a factory in the U.S. and last year said Mr. Cook promised to build three plants in the U.S.
Apple has responded over the past year by pointing to its spending on procurement in the U.S. and to the size of the so-called app economy spawned by the iPhone, which the company says has created more than 1.6 million U.S. jobs.
The tax overhaul’s one-time levy on overseas cash is often referred to as a repatriation tax, although it applies whether companies leave their foreign profits overseas or bring them to the U.S. It is intended as a transition from the previous tax system, under which the U.S. taxed all world-wide profits of an American company except those kept overseas, to the new system, in which the U.S. won’t tax most foreign profits at all. Companies may choose to pay the one-time tax over eight years.
The $38 billion in taxes Apple owes reflects its growth in the decade since Congress last reduced taxes on overseas holdings. In 2006, Apple recorded a tax charge of $51 million as it repatriated $1.6 billion in cash held overseas for the fiscal year.
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Apple’s accumulated foreign profits of $252.3 billion amount to just over a quarter of the U.S. tech industry’s total, a Wall Street Journal analysis of 311 large public companies found, and about 9.5% of the $2.65 trillion in foreign profits reported by all companies in the analysis.
A tax obligation of $38 billion would work out to about 15% of the S&P 500’s total obligation under the repatriation tax, based on figures from the Journal analysis and a separate analysis by Zion Research Group. Altogether, the Joint Tax Committee estimated last month, the tax should raise about $339 billion over 10 years from all companies—meaning Apple could account for 11% of the total.
The changes in U.S. tax law triggering Apple’s $38 billion tax obligation don’t affect the company’s responsibility to repay Ireland €13 billion ($15.9 billion) in unpaid taxes in Europe, according to a spokesman for Ireland’s Department of Finance. Apple has challenged the ruling.
Apple also told employees Wednesday it is issuing each of them a bonus of $2,500 in restricted stock, according to a person familiar with the matter. The planned bonus, reported earlier by Bloomberg, adds Apple to the growing list of companies that are rewarding employees due to the new tax law, including AT&T Inc. and ComcastCorp.
If Apple brings home a large share of its overseas cash it could decide to apply some of it to more buybacks and dividends. Apple has returned $233.9 billion to investors since fiscal 2012.
Mr. Sacconaghi expects Apple to provide an update on potential increases to those programs when it reports quarterly results in April or May, when it typically announces such plans. That would give it a chance to see how much cash other companies plan to return to shareholders from overseas holdings—moves that could please investors but aren’t as helpful to public perception as investments in jobs. “No company with that much cash wants to be the first to do a significant buyback,” he said.
Apple’s announcement said it currently employs 84,000 people in the U.S., 4,000 more than it said a year ago.
The company said it would offer more information later this year on its planned new campus. The facility is expected to be located outside of California and Texas, where the company already operates campuses: in Austin, Texas, and its new $5 billion headquarters, Apple Park, in Cupertino, Calif.
—Theo Francis, Richard Rubin and Natalia Drozdiak contributed to this article.
Corrections & Amplifications
Apple had $252.3 billion in cash and marketable securities held overseas as of the end of November. An earlier version of this article incorrectly stated it had $246 billion overseas.
The Dow Jones industrial average is trading above 25,000 points for the first time early Thursday, breaking another 1,000-point milestone. The market was rising broadly after a survey showed strong hiring by U.S. private businesses. Banks are leading the way as interest rates jump. European stocks are also rising.
KEEPING SCORE: The Standard & Poor’s 500 index climbed 12 points, or 0.5 percent, to 2,725 as of 10 a.m. Eastern time. The Dow Jones industrial average rose 147 points, or 0.6 percent, to 25,069. The Nasdaq composite added 18 points, or 0.3 percent, to 7,084. The Russell 2000 index of smaller-company stocks gained 5 points, or 0.4 percent, to 1,558.
The Dow reached 24,000 on Nov. 30, just 23 trading days ago. Stocks have climbed since then as investors hoped the Republican-backed tax package would boost company profits this year. The law cuts the U.S. corporate tax rate substantially. The Dow broke through five 1,000-point milestones in 2017, on its way to a 25 percent gain for the year.
SURVEY SAYS: ADP said private U.S. businesses added 250,000 jobs last month as health care, retail and professional services companies hired more workers. The survey suggests businesses are optimistic about the economy and expect more demand. The government will release a jobs report Friday that covers both private companies and governments. Economists forecast that will show a gain of 189,000 jobs, according to a survey by data provider FactSet.
Meanwhile business activity in the 19-country eurozone reached its highest level in almost seven years. That’s based on a survey of manufacturing and services companies. One of the reasons stocks have done so well over the last year is the improved health of the global economy as European countries and both developing and advanced nations around the world experience better growth after years of struggles.
European stock indexes climbed. France’s CAC 40 leaped 1.6 percent while Germany’s DAX gained 1.5 percent. In Britain the FTSE 100 edged 0.3 percent higher.
BONDS: Bond prices sank, sending yields higher. The yield on the 10-year Treasury note rose to 2.48 percent from 2.44 percent. Banks made strong gains in early trading as increased interest rates mean they can make more money from mortgages and other loans. JPMorgan Chase gained $2.01, or 1.9 percent, to $109.51 and Wells Fargo rose $1.11, or 1.8 percent, to $62.67.
CHIP DIP: Intel continued to stumble after security researchers at Google discovered serious security flaws in its computer processors. It lost $1.90, or 4.2 percent, to $43.36 after a 3.4 percent decline Wednesday. Intel said it’s working to fix the problem and that it’s not the only company affected.
Rival Advanced Micro Devices said it believes its chips are safe and its stock jumped 83 cents, or 7.2 percent, to $12.38. Most of Intel’s rivals made big gains Wednesday.
Elsewhere among tech stocks, Google parent Alphabet climbed $11.30, or 1 percent, to $1,102.82 and Intuit added $2.44, or 1.5 percent, to $161.60.
MORE TESLA TROUBLE: Electric car maker Tesla again said it fell short of production goals for its new Model 3 sedan, which is intended to be its first lower-cost car. The shares skidded $8.47, or 2.7 percent, to $308.78.
ENERGY: Benchmark U.S. crude rose 7 cents to $61.70 a barrel in New York. Brent crude, used to price international oils, shed 7 cents to $67.77 a barrel in London.
ASIA: Japan’s benchmark Nikkei 225 advanced 3.3 percent in the first trading day of the year. South Korea’s Kospi lost 0.8 percent while Hong Kong’s Hang Seng added 0.5 percent.
CURRENCIES: The dollar rose to 112.79 yen from 112.52 yen. The euro climbed to $1.2083 from $1.2018.
President Trump sought to repackage his hard-line campaign promises with a moderate sheen Tuesday night, declaring what he termed “a new chapter of American greatness” of economic renewal and military might in his first joint address to Congress.
Seeking to steady his presidency after a tumultuous first 40 days, Trump had an air of seriousness and revealed flashes of compassion as he broadly outlined a sweeping agenda to rebuild a country he described as ravaged by crime and drugs, deteriorating infrastructure and failing bureaucracies.
Trump’s 60-minute speech touched on his plans to overhaul the nation’s health-care system and tax code, but it was short on specifics and heavy on lofty prose. Struggling to steer a bitterly divided nation with his job-approval ratings at historic lows, Trump effectively pleaded with the American people to give him a chance and to imagine what could be achieved during his presidency.
“We are one people, with one destiny,” Trump said quietly near the end. “The time for small thinking is over. The time for trivial fights is behind us. We just need the courage to share the dreams that fill our hearts.”
Trump extended olive branches to his opponents. He called on Congress to pass paid family leave, a reference to a long-held Democratic Party priority that brought liberal lawmakers to their feet to applaud. And he pledged to work with Muslim allies to extinguish Islamic State terrorists, going so far as to acknowledge the killings of Muslims as well as Christians in the Middle East.
President Trump said his administration is working on “historic tax reform” during his first joint address to Congress on Feb. 28. “It will be a big, big cut. At the same time, we will provide massive tax relief to the middle class,” he said. (The Washington Post)
Still, Trump did not back away from his most controversial policies. He used typically bellicose language to describe the fight against the Islamic State, calling it “a network of lawless savages that have slaughtered Muslims and Christians, and men, women and children of all faiths and all beliefs.” He made a point to utter the phrase “radical Islamic terrorism,” which Republicans cheered heartily.
The president forcefully defended his travel ban of refugees and citizens from seven Muslim-majority countries — an executive order that was halted in federal court — as necessary to prevent the entry of foreigners who do not share America’s values.
“We cannot allow a beachhead of terrorism to form inside America,” Trump said. “We cannot allow our nation to become a sanctuary for extremists.”
The president trumpeted his plans to budget a major increase in military spending. One of Trump’s fiercest Republican critics, Sen. John McCain (Ariz.), stood enthusiastically when the president said he would end the “defense sequester” caps on Pentagon spending.
On foreign affairs, Trump said he would honor historic alliances — and explicitly stated his support for the North Atlantic Treaty Organization, on which he had wavered during his campaign — but said he would seek new ones as well, even with former adversaries. The latter seemed an indirect reference to potentially working to combat terrorism with Russia, which U.S. intelligence agencies have concluded meddled in the November election in hopes of helping Trump.
“America is willing to find new friends, and to forge new partnerships, where share interests align,” Trump said. “We want harmony and stability, not war and conflict.”
Trump declared the time had come to rewrite trade deals and alliances in terms that benefit the United States, irrespective of global pressures.
“My job is not to represent the world,” Trump said. “My job is to represent the United States of America.”
Trump was adamant that the United States cannot continue to abide by what Republicans and Democrats see as free trade. “It also has to be fair trade,” Trump said. He cited Abraham Lincoln, who, he said, “warned that the ‘abandonment of the protective policy by the American government [will] produce want and ruin among our people.’ ” He said he would not let workers “be taken advantage of anymore.”
As is tradition when the president addresses a joint session of Congress — typically known as a “State of the Union,” although the speech is not called that during a president’s first year — Trump invited guests to sit with first lady Melania Trump in the balcony.
The night’s emotional high point came when Trump singled out one of the night’s guests, Carryn Owens, the widow of Navy SEAL William “Ryan” Owens, who died in a Jan. 29 raid in Yemen.
Although Ryan’s father has spoken out against the raid that killed his son, Trump said Tuesday night that Ryan died “a warrior and a hero,” with Carryn looking on with tears in her eyes. The audience stood with sustained applause. Trump peered up at Carryn and said, “Ryan is looking down right now. You know that. And he’s very happy.”
Trump, as he typically does, basked in his electoral feat and cast his ascent to the presidency in epic terms. “In 2016, the earth shifted beneath our feet,” he said, saying that a “rebellion” that started as “a quiet protest” morphed into “a loud chorus” and finally “an earthquake.”
He said he was sent to Washington to deliver on the promises he made on the campaign trail — arguably chief among them, to build a wall along the U.S. border with Mexico. Trump argued that everyday Americans cannot succeed “in an environment of lawless chaos” at the borders.
“To any in Congress who do not believe we should enforce our laws, I would ask you this one question: What would you say to the American family that loses their jobs, their income or their loved one, because America refused to uphold its laws and defend its borders?”
As he spoke, Trump turned toward Jamiel Shaw, a black man whose son was killed by an illegal immigrant. Shaw, who frequently traveled with Trump during last year’s campaign, sat stone-faced and then grew visibly emotional as Trump spoke to him and Shaw stood to applause.
On the seemingly intractable issue of immigration, Trump signaled he would be open to a reform bill — though he did not state what terms he would find acceptable in such a compromise.
“I believe that real and positive immigration reform is possible, as long as we focus on the following goals: to improve jobs and wages for Americans, to strengthen our nation’s security, and to restore respect for our laws,” Trump said. “If we are guided by the well-being of American citizens, then I believe Republicans and Democrats can work together to achieve an outcome that has eluded our country for decades.”
Trump said he supports a “merit-based immigration system,” such as those in Canada and Australia, that allow people to enter the country who can support themselves financially and contribute to society.
Trump challenged both parties in Congress to move quickly to repeal and replace the Affordable Care Act, the signature health-care law of former president Barack Obama.
“Obamacare is collapsing, and we must act decisively to protect all Americans,” Trump said. “Action is not a choice; it is a necessity.”
House Republicans immediately rallied behind Trump’s remarks, interpreting his words as an endorsement of several key parts of their own plan. In an email to reporters, an aide to House Speaker Paul D. Ryan (R-Wis.) wrote that Trump “embraced” the House plan and demonstrated that “the White House and Congress are coalescing around a particular approach” that includes individual health-savings plans and tax credits.
“The way to make health insurance available to everyone is to lower the cost of health insurance, and that is what we are going to do,” Trump said, calling for Democrats to work with him. He said he would “ensure that Americans with preexisting conditions have access to coverage and that we have a stable transition for Americans currently enrolled in the health care exchanges.”
Turning to the states, he said he would give governors “the resources and flexibility they need with Medicaid to make sure no one is left out,” a supportive mention of a program whose budget some Republicans would like to see pared back.
Trump also called for a $1 trillion infrastructure plan that he said would be the biggest program of national rebuilding since former president Dwight Eisenhower built the interstate highway system in the 1950s. Trump said his projects would be financed through a combination of public and private capital, but he offered no further details.
Trump was more somber than usual, toning down his bravado, but there were moments where he reveled in his celebrity. He glad-handed Supreme Court justices as he made his way to the rostrum and shared small talk with a reverential congressman, Rep. Louie Gohmert (R-Tex.). As he left at the end of his speech, he paused to autograph books in the aisle.
An uncharacteristically disciplined Trump stuck mostly to the script running on his teleprompters, but he veered off his prepared text at times to make playful asides. During a discussion about taxes, Trump recalled his visit with Harley-Davidson executives and ad-libbed, “They wanted me to ride one and I said, ‘No, thank you.’ ”
Trump opened his address by noting the wave of anti-Semitic vandalism and threats targeting Jewish cemeteries, community centers and schools. “We are a country that stands united in condemning hate and evil in all of its very ugly forms,” Trump said.
Trump plans to take his message to the American people on a traditional road show, like those his predecessors undertook to sell their agendas following major addresses to Congress.
On Thursday, Trump plans to give a speech aboard the USS Gerald Ford, a newly christened aircraft carrier in Newport News, Va., and lead a roundtable discussion with military officials and shipbuilders. And on Friday, he will visit St. Andrew’s Catholic School in Orlando to conduct what aides described as a listening session on school choice.
At a moment when more Americans oppose him than support him, Trump sought to sell the country on his vision for transformational change. He wanted people to imagine America on its 250th anniversary in 2026 following what he hopes will be a two-term presidency.
He said dying industries like coal would come roaring back to life, new roads and bridges would be built, and the drug epidemic would not just slow down, but stop.
“Everything that is broken in our country can be fixed,” Trump said. “Every problem can be solved. And every hurting family can find healing, and hope.”
The White House hyped the news Friday that January payrolls had risen by 243,000. The hitch is the Bureau of Labor Statistics (BLS) also dropped 1.2 million from the calculated workforce. Somehow this net loss of a million workers in a single month was transformed into an improvement in the unemployment rate. As the old saying goes, figures don’t lie, but liars can figure.
“Job growth was widespread,” the BLS reported, but most Americans sense that something isn’t quite right with the numbers. The most important change was the deep decline in the workforce. While the overall population jumped an 1.6 million in January, the workforce declined a record-setting 1.2 million. This figure represents those who out of sheer frustration or for other reasons have dropped out of what the government defines as the active labor pool. They are worse than simply unemployed; they are both jobless and hopeless.
The good news for Obama administration statisticians is that these unfortunates don’t factor into the official unemployment rate, which only counts those thought to be looking for work. So while five people drop out of the system in despair for every new job created, the official unemployment rate declines and the White House enjoys a good news day.
“The recovery is speeding up,” President Obama declared. However, the broader measures tell a different story. The employment-to-population ratio, the most comprehensive jobs number, remained flatlined at 58.5 percent, around where is has been for at least a year. The number lacking jobs has likewise remained steady at 41.5 percent. The overall participation rate, the percentage making up the workforce in the population, accelerated an already steep decline to a 30-year low of 63.7 percent. In short, the recovery is not speeding up – people are simply giving up.
The participation rate is a subjective measure and highly subject to manipulation. The lower it goes and the more people are dropped from the unemployment equation, the better the numbers will look for the White House. This figure has been dropping sharply since Mr. Obama took office. Last month, an analysis at the Zero Hedge financial website noted that by extending the logic of reporting progressively fewer labor-force participants, “America will officially have no unemployed when the Labor Force Participation rate hits 58.5 percent, which should be just before the presidential election.” Maybe that’s the plan.
A year ago, there were 99 million people either officially unemployed or otherwise not working, and the official unemployment rate was 9.1 percent. Now, unemployment reported by the government is down to 8.3 percent, but the number without jobs has topped 100 million. The disconnect between increasing joblessness in America and the rosy White House official statistics should be the subject of a congressional investigation. Something does not add up.
When it comes to the unemployment rate, it’s nice to be president.
Sure, it wasn’t so nice for President Obama in October 2009, when the federal Bureau of Labor Statistics declared the rate was 10 percent. But exactly a year from Election Day 2012, the rate began a precipitous plunge, first to 8.9 percent, then the next month, to 8.7, then to 8.5. And just last week, the BLS said the rate had fallen all the way down to 8.3 percent.
If the spectacular “recovery” keeps up at the same pace, the rate will be 6.3 percent by Nov. 6. It hasn’t been that low since — well, all but four of the 96 months George W. Bush was in office. But you get the point. America is back!! Woo-hoooo!!
So, spectacular news for the president, yes? And fantastic news for America, right? Uh, yes. And absolutely no.
See, the BLS boys, no doubt at the president’s direction, are busy rewriting the rules, and they’re in uncharted, and unchecked, territory. The federal government Friday declared that the U.S. had created — not “saved,” mind you, “created” — 243,000 jobs. Amazing, right?
But wait, what’s that little asterisk here? A record 1.2 million Americans left the labor force? 1.2 million?! Well, where’d they go? Oh, just left? Well, OK. But no, wait. What does that even mean?
Zerohedge.com’s Tyler Durden (the first rule of … eh, you know the rest) precisely spelled out the government version of “Project Mayhem”:
“A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55 percent. Looks like the good folks at the BLS heard us: It appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non-institutional population increased to 242.3 million, meaning those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30-year low of 63.7 percent as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation.”
The labor force rate — all workers more than 16 years old — climbed above 66 percent in October 1988. It stayed there throughout the term of President George H.W. Bush, and topped 67 percent for 40 consecutive months during President Clinton’s two terms. The rate stayed above 66 percent for almost all of President George W. Bush’s two terms.
But the month Mr. Obama was elected, the rate dropped to 65.8 percent. By the end of his first year in office, the BLS said the labor participation rate was just 64.6 percent. And last month, for the first time in nearly 30 years, the rate dropped all the way down to 63.7 percent.
Still, month after month, the mainstream media laps up reports of a falling unemployment rate. “U.S. Jobless Rate Falls to 8.3 Percent, a 3-Year Low,” blared the New York Times. “The nation’s unemployment rate dropped for the fifth straight month, to 8.3 percent, its lowest level in three years, the Labor Department reported Friday, with widespread hiring across the economy,” declared the Washington Post.
Clearly, they hadn’t read the major financial papers the month before. When the unemployment rate dropped to 8.5 percent in December, the Financial Times wasn’t convinced. “According to government statistics, if the same number of people were seeking work today as in 2007, the jobless rate would be 11 percent.”
And they must have ignored the Gallup write-up the month before: “The sharp drop in the government-reported unemployment rate for November and the sharp drop in jobless claims during the most recent reporting week have combined to create the perception that the job market may be improving … . In contrast, Gallup’s data suggest little improvement in the jobs situation.” The organization concluded: “It may be wise to exercise caution in interpreting the drop in the government’s most recent jobless claims numbers.”
No one in the mainstream media, busy rewriting the government’s press release on Friday, will bother to question the newest number, or explore what trimtabs.com CEO Charles Biderman said that very day: “Actual jobs outstanding, not seasonally adjusted, are down 2.9 million over the past two months. It is only after seasonal adjustments — made at the sole discretion of the Bureau of Labor Statistics economists — that 2.9 million less jobs gets translated into 446,000 new seasonally adjusted jobs for January and December.
“No one I know has any idea as to how the BLS does this seasonal adjustment,” he said.
When Project Mayhem has run its course, Tyler Durden (the other one), looking out across the city, where banks and financial institutions are about to implode, says: “Out these windows, we will view the economic collapse. One step closer to global equilibrium.”
ISELIN, New Jersey —
Two top Federal Reserve officials on Friday pushed the case for more stimulus
from the U.S. central bank to help the economic recovery, each zeroing in on
the country’s weak housing market.
Policymakers need to consider more action to kick-start the
housing sector and help the country’s “frustratingly slow” economic
recovery and “unacceptably high” unemployment, William Dudley,
president of the New York Federal Reserve Bank, said in a speech in New Jersey.
Monetary policy should work to complement actions by other
U.S. government policymakers, which together could help to stabilize home
prices and turn around the housing market within a year or two under good
conditions, said Dudley.
Speaking in Hartford, Connecticut, the president of the
Boston Fed, Eric Rosengren, said one way to shore up housing would be for the
central bank to buy more mortgage-backed securities.
“Given the low inflation rate and weak labor markets
that are both likely to persist this year, I believe the Federal Reserve should
continue to explore ways to promote more rapid recovery through stronger
growth,” Rosengren told a business group.
The speeches from Dudley and Rosengren, both of whom are
considered part of the Fed’s “dovish” wing — more concerned with
strengthening the economy than trying to contain inflation — made similar
arguments and could set the tone for the central bank’s more activist wing this
year. Dudley, as the president of the New York Fed, holds a permanent vote on the
central bank’s policy-setting committee; Rosengren will rotate into a voting
seat in 2013.
The Fed has bought Treasury debt and, to a lesser extent,
mortgage-backed securities as part of its so-called quantitative easing efforts
over the last three years, totaling $2.3 trillion in purchases. In response to
the worst recession in decades, the Fed late in 2008 also slashed interest
rates to near zero. .
The purchase of mortgage securities, however, was a
controversial part of the first round of easing in 2009, known as QE1, drawing
criticism from some officials for propping up a specific sector of the economy.
Dudley has in the past suggested the Fed could potentially
do more to drive down mortgage rates to support the housing sector, which was
at the heart of the financial crisis and recession and has continued to hamper
the recovery.
“I believe it is also appropriate to continue to
evaluate whether we could provide additional (policy) accommodation in a manner
that produces more benefits than costs, regardless of whether action in housing
is undertaken or not,” Dudley told the New Jersey Bankers Association
Economic Forum.
“Monetary policy and housing policy are much more
complements than substitutes.”
The Fed is to hold its next policy-setting meeting January
24-25, when a new slate of four regional Fed bank presidents will rotate into
voting seats. Any further action could hinge tightly to prospects for the
United States’ stubbornly high unemployment.
The Labor Department on Friday reported that nonfarm
payrolls added 200,000 jobs in December, the biggest gain in three month, and
the jobless rate dropped to a near three-year low of 8.5 percent, offering the
strongest evidence yet of an acceleration in economic activity.
Asked about the news, Rosengren said that while the job
growth is better than had been seen recently, it is still not enough to return
the country to full employment.
The moribund housing market and the European debt crisis,
which is dragging on the European economy, continue to pose a threat to the
U.S. recovery.
The Fed waded into the debate over what to do with the two
main government-run mortgage finance firms this week, arguing in a paper sent
to Congress that Fannie Mae and Freddie Mac could play a bigger role in turning
around the housing market if they were allowed to provide cheaper mortgages to
a broader pool of homeowners.
On Friday, Dudley called the white paper “a thoughtful
analysis of housing policy.”
A “truly comprehensive approach,” he added,
“would also include long-term reform — including reform of Fannie Mae and
Freddie Mac — to put housing finance on a more stable footing and to equip the
market to deal more effectively with any future systemic shocks.”
