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Yellen Staying the Course, Institutional Investors Cheer

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Credit: Library of Congress

Credit: Library of Congress

Janet Yellen, the newly inaugurated chair of the Federal Reserve, gave her first testimony before Congress, delivering the Fed’s semiannual Monetary Policy Report to Congress, also known as the Humphrey Hawkins testimony. Yellen, who became chairman earlier this month, largely echoed the sentiment of her predecessor, Ben Bernanke, defending the use of unconventional policy tools, such as forward guidance, and planning to maintain very low interest rates. Institutional investors around the globe, including sovereign wealth funds and pension CIOs listened intently on her words.

“I expect a great deal of continuity in the FOMC’s approach to monetary policy,” Yellen said in her prepared remarks. “I served on the Federal Open Market Committee as we formulated our current policy strategy and I strongly support that strategy.”

Barring a “notable change” in economic data, Yellen said the Fed will continue tapering its monthly purchase of Treasuries and mortgage-backed securities. The process, known as quantitative easing (QE) implemented by the FOMC, was intended to lower long-term interest rates to stimulate spending in the domestic economy. Under Chairman Bernanke, the Fed scaled back monthly asset purchases to US$ 65 billion.

Although signs of slow job growth will not shake the Fed’s resolve to taper asset purchases, Yellen said the Fed will keep short-term interests rates at zero “well past” the time unemployment reaches 6.5%, which was the benchmark the Fed set for raising rates in 2012, when unemployment was at 8.1%, during its last round of stimulus.

This is approximately a 133% increase in the debt limit from May 2003.

Staying the Course

Yellen said she strongly supports the Fed’s dual mandate to promote employment and control inflation. Unemployment has dropped to 6.6%, but Yellen told the U.S. House of Representatives’ Financial Services Committee that the labor market recovery was “far from complete.” The Bureau of Labor Statistics reported only 113,000 new nonfarm positions added in January and 75,000 in December. In addition, the labor force participation rate plunged over the years – testing late 1970s levels.

Doing the Popular Thing

As many of her predecessors at the Fed have done, Yellen warned that the United States is on an unsustainable fiscal budget path. Rising deficits will crowd out private investment leading to higher interest rates and slower growth, she said. This is on the backstop of Congress agreeing to approve the U.S. debt limit through March 2015. The new U.S. debt ceiling is US$ 17.2 trillion which served as blow to pro-austerity politicians. Near the end of May 2003, Congress approved at debt limit of US$ 7.384 trillion. This is approximately a 133% increase in the debt limit from May 2003.

When pressed by Rep. Michele Bachmann (R-Minn.) to respond to former Congressman Ron Paul’s “Audit the Fed” proposal, Yellen said she strongly objected to “interfering with the independence of monetary policy, by bringing political pressures to bear on the committee’s judgment.” She noted that the Fed is already audited extensively and said she opposed the idea of Washington second guessing central bank decisions.

GIC Supports CapitaLand Shanghai Investment on Haimen Road

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GIC Private Limited, Singapore’s sovereign wealth fund, has entered into a 50:50 joint venture with Raffles City China Investment Partners III (RCCIP III), a fund controlled by CapitaLand. The joint venture is acquiring Shanghai’s tallest twin towers for an aggregate consideration of RMB 12.8 billion (US$ 1.84 billion). The property is located in Shanghai’s core Central Business District.

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Wells Fargo Could be Slimming Down, Possible Retirement Unit Sale

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Wells Fargo (WFC) is looking to exit the retirement plan servicing market, for a potential sale price of US$ 1 billion. The unit is involved in record-keeping, custody, trust details and various other retirement plan services for corporations. It is housed under the Wealth and Investment Management unit. The retirement plan servicing market is not particularly compelling for the bank, especially in light of the U.S. Department of Labor’s newer regulations to force managers to disclose compensation arrangements and fees to plan fiduciaries. Wells Fargo has been lauded for its loyal consumer base and high revenue, and doesn’t require the business, though recent scandals have been a drag on the company’s profitability and public image. This news has pre-empted some advisors to jump ship. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Petroleum Signs Deal to Buy Interest in Nour North Sinai Offshore Area Concession

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Mubadala Petroleum, a division of Mubadala Investment Company, signed a deal to acquire a 20% percent participating interest in Egypt’s Nour North Sinai Offshore Area concession. The seller of the interest is a subsidiary of the Italian energy giant Eni. Eni holds an 85% stake in the partnership with Tharwa Petroleum Company, which holds a 15 percent interest. Formed in 2004, Tharwa Petroleum Company is 100% owned by the Egyptian government through a variety of state-owned entities such as the Egyptian General Petroleum Corporation (EGPC) at 20% and Egyptian National Gas Holding Company (EGAS) at 20%.

The sales transaction is subject to conditions, such as approval from government authorities in Egypt.

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