Yellen: December interest-rate hike a ‘live possibility’

Federal Reserve (the Fed) Chairman Janet Yellen said last Wednesday that an interest-rate hike in December is a “live possibility” if the economy stays on track. Yellen described the US economy as “performing well” right now, with solid growth in domestic spending. At their meeting last week, policymakers believed that the threat of global headwinds had ebbed, Yellen said.

At its December 15 and 16 meeting, the Fed will consider raising a key interest rate from a record low near zero if the economy continues to grow at a strong enough pace to keep adding jobs and push annual inflation toward the Fed’s 2-percent target, Yellen said. Yellen stressed that no decision has been made yet, and a move in December will depend on how the economy fares between now and then. She reiterated that when the Fed does start raising rates, it will do so gradually.

She said she understood that “there is a great deal of focus” on the timing of the Fed’s first rate hike in nearly a decade. But she said the more important focus should be on the pace of rate hikes after the Fed decides to move.

“The committee’s expectation is that it will be a very gradual path and…will depend very much on the actual performance of the economy,” she said. Yellen’s comments came in response to questions during an appearance before the House Financial Services Committee on Wednesday. William Dudley, president of the Fed’s New York regional bank, said at a separate appearance later in the day that he was in full agreement that December was a “live possibility and we will see what the data shows.”

The main topic of the committee hearing was banking supervision and regulation. On that subject, Yellen said that the country’s largest financial institutions are still falling short of managing the types of risks that led to the 2008 financial crisis.

While Yellen acknowledged progress in making the financial system more resilient to shocks, she expressed concerns about the “substantial compliance and risk-management issues” at the institutions.

“Compliance breakdowns in recent years have undermined confidence in the [banks’] risk management and controls and could have implications for financial stability, given the firms’ size, complexity and interconnectedness,” Yellen said.

The group includes the eight largest banks in the US, a number of major foreign banks operating in the US and several large institutions that have been judged systemically important. Republicans on the House committee have been critical of many of the regulatory changes the Fed is undertaking to implement the 2010 Dodd-Frank Act.

Committee Chairman Jeb Hensarling, Republican-Texas, criticized the Fed for failing to provide enough details about the annual stress tests it conducts on the biggest banks to ensure they can withstand a severe financial downturn.

He told Yellen he had great concern about “how opaque and nontransparent” the stress tests are.

Yellen said that the Fed tries to provide banks detailed information about the methodologies it is using to structure the tests each year.

The Fed’s overriding goal is to make sure that it has sufficiently addressed the kind of problems that lead to the 2008 crisis, the worst financial crisis in the US in seven decades, Yellen said.

“We have made changes in our supervision that now allow us to supervise large financial institutions on a more coordinated, forward-looking basis,” Yellen added­.

-- Associated Press

Builders happy with low interest rates on housing loans

An association of housing developers in Davao city said the more affordable housing loan interest rates now offered by the Home Mutual Development Fund or the Pag-ibig Fund should help perk up anew the construction of socialized housing units across the country.

The low interest rate environment should also help reduce at a faster rate the national housing backlog of some 4 million units that has not been addressed effectively for several years already, Carlito Dublan, president of the Davao regional chapter of the Organization of Socialized Housing Developers of the Philippines, said.

Dublan said the Pagibig Fund has reduced its interest rate to 7 percent since last year. “This put that agency at the competitive level with the banks, which impose between 6.5 percent and 7 percent,” he said.

But he added the housing developers have a request pending action from the government concerning the price of socialized housing units, saying that at Php400,000 to Php450,000 per unit “is the price that is not reflective of current market prices.”

“That’s the price 10 years ago. Now the land we are buying are more than double the price 10 years ago,” he said.

That would explain why developers “have to be creative” to fit the government price model. He did not say if this model also imputes the complaints of homeowners about substandard materials or inadequate number of building materials, such as steel bars, for certain parts of the house, like the roof and ceiling support.

“Let’s watch over the next few months if the changes in the housing sector are implemented soon,” he added.

Dublan said the reforms in the construction sector include the several items that housing developers were able to wrench from Housing Land Use and Regulatory Use and the other national government housing agencies.

“Many of these reforms that we ask them were mostly regulations that are too restrictive for us in the private construction sector,” he said.

For instance, “we were able to persuade the government to throw away their regulation that we have to comply with their fixed deadline of one year to three years to construct a housing project”.

“This time, they would look at the individual work program that developers would submit to them, where the timetable is also included,” he said.

-- Business Mirror