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Council on Foreign Relations Daily News Brief
September 18, 2013
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Top of the Agenda

Top of the Agenda: Markets Await Fed Decision

Markets have traded up in recent days as investors await a decision from the U.S. Federal Reserve on Wednesday on its plan to taper its $85 billion monthly asset purchase program, with analysts expecting a $10 billion monthly reduction (WSJ). As the Fed's $2 trillion quantitative easing program winds down, the general public is largely unaware of its existence; a recent poll finds that only 27 percent of Americans understand the meaning of the unconventional monetary policy measures (Reuters). Wednesday's decision is expected to spark a surge in trading as investors make adjustments to their portfolios, and could help banks recover from a slump in trading activity this summer (Bloomberg).

Analysis

"The August jobs numbers were slightly weaker than the market consensus expectation, but the fall in the unemployment rate to 7.3% was one the Fed had in June not actually expected to see until the fourth quarter… The bottom line is that if an imminent Fed taper is misguided… it is not misguided because of the August jobs report," CFR Senior Fellow Benn Steil and Analyst Dinah Walker write in a blog post.

"Given the realities of the tepid economy and the range of policy uncertainties… the Fed would be well advised to start small—e.g., a $10-$15 billion reduction in monthly purchases. It would be best if the reduction falls disproportionately on U.S. Treasuries, thus favoring for now the purchase of MBS (mortgage-backed securities) to support a housing market that is already showing some early signs of weakening," writes Mohamed El-Erian in Fortune.

"The symbolic effect is huge. A taper would signal the passing of 'peak QE' in the world's largest economy. Although it is always possible that the economy will weaken, and the Fed will pick up its pace of asset buying again, that is less likely now the economic recovery is four years old and the unemployment rate down to 7.3 per cent.," Robin Harding writes in the Financial Times.

 

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PACIFIC RIM

UN Report Highlights North Korean Atrocities

A UN inquiry into human rights violations in North Korea revealed "unspeakable atrocities" according to investigators (CNN), including torture, executions, and other horrors in prisons. Pyongyang did not cooperate with the inquiry and rejected its conclusions.

CFR's Scott Snyder explains why it's time to expect new provocations from North Korea in this blog post.

AUSTRALIA: Prime Minister Tony Abbott was sworn in on Wednesday, becoming the country's twenty-eighth prime minister (SMH).

 

SOUTH AND CENTRAL ASIA

Rupee Trims Losses Ahead of Fed Decision

India's currency increased slightly on Wednesday after it posted its sharpest decline in two weeks to 63.37 against the dollar on Tuesday (Hindu). Foreign investors in India have shifted some of their rupee holdings back to dollars as interest rates on U.S. bonds increase.

BANGLADESH: Supporters of Bangladesh's largest Islamic party clashed with police during a strike to protest a court ruling to execute one of the opposition party's leaders earlier this week (Dawn).

 

MIDDLE EAST

Libya Seeks Help to Restore Security

Libya's prime minister asked for foreign help to restore security as the country grapples with political chaos, unaccountable militias, and strikes at its oil facilities that have crippled exports (WSJ).

EGYPT: Security forces arrested a senior Muslim Brotherhood official who acted as the group's spokesman with the foreign press, in a continuation of the crackdown that began in July (NYT).

 

AFRICA

Sudan's Bashir Seeks U.S. Visa to Join UN Meeting

President Omar al-Bashir, the Sudanese leader who has been indicted by the International Criminal Court on charges of war crimes, crimes against humanity, and genocide, has applied for a U.S. visa to attend the UN General Assembly, a move that Washington condemned (SudanTribune).

ZIMBABWE: After opening a new session of parliament, President Robert Mugabe vowed to continue his effort to put foreign firms under national control (News24).

 

EUROPE

Hollande Says French Taxes Too High

President François Hollande, who was elected last year on a promise to hike taxes on the richest citizens to 75 percent, said the government had raised taxes "too much" in the past two years, and promised a "tax pause" (FT).

GERMANY: Angela Merkel's center-right coalition fell behind the center-left opposition, indicating that Merkel may need to bring in the opposition to form a government (Reuters).

 

AMERICAS

Brazil's President Postpones Washington Visit

Brazilian president Dilma Rousseff postponed a state visit to Washington in October, as the rift between the United States and Brazil widens after alleged U.S. intelligence documents revealed that Rousseff and Brazilian companies were under electronic surveillance (MercoPress).

 

 

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