Fed Archives - Page 5 of 8 - the patient investor

March 5, 2012

Morgan Stanley Still Expects QE3 This Year – WSJ

“For some time, our call has been that the Federal Reserve will undertake additional balance-sheet action in the first half of 2012,” writes Vincent Reinhart, an economist with the bank and a former top-level Fed staffer.

He argues it’s most likely the Fed will act to expand its balance sheet via Treasury and mortgage bond buying — in market parlance, QE3 — at either the April or June Federal Open Market Committee, and that the ultimate size of the program could tack on $500 billion to $700 billion onto what is currently a $2.9 trillion balance sheet. There’s also a chance they will put in place a modified version of the current effort to sell short-dated bonds to buy longer-dated securities.

Why act? Reinhart says the second half of the year will box the Fed in politically. Officials won’t wish to be seen starting a high-profile action in the thick of the presidential campaign. Also, he reckons growth will still be too weak, and inflation will be falling short of the Fed’s 2% target.

via Morgan Stanley Still Expects QE3 This Year – Real Time Economics – WSJ.

February 15, 2012

QE3 – Wall Street’s biggest fantasy? | WSJ.com

WSJ.com – Mean Street

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Steven Russolillo discusses the prospects of another round of quantitative easing by the Federal Reserve based on recent comments by Dallas Fed Chief Richard Fisher.

January 28, 2012

Living In A QE World | Jim Bianco

Central banks are ruling markets to a degree this generation has not seen. Collectively they are printing money to a degree never seen in human history.

So how does this process get reversed? How do central banks pull back trillions of dollars of money printing without throwing markets into a tailspin? Frankly, no one knows, least of all central banks as they continue to make new money printing records.

…..When/If these central banks go too far, as was eventually the case with home prices, expanding balance sheets will no longer be looked upon in a positive light. Instead they will be viewed in the same light as CDOs backed by sub-prime mortgages were when home prices were falling. The heads of these central banks will no longer be put on a pedestal but looked upon as eight Alan Greenspans that caused a financial crisis.

via Living In A QE World | The Big Picture.

January 26, 2012

The winners and losers of QE3 – macrobusiness.com.au

The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

That’s a clear declaration of intended QE3 if conditions are met. The two conditions are price stability and inadequate employment growth. Price stability now has a number with the Fed also announcing a new inflation target of 2%. Anything under that number potentially triggers QE3.

via The winners and losers of QE3 – macrobusiness.com.au | macrobusiness.com.au.

January 17, 2012

Nouriel Roubini’s Global EconoMonitor » The Straits of America

Given the bearish outlook for US economic growth, the Fed can be expected to engage in another round of quantitative easing. But the Fed also faces political constraints, and will do too little, and move too late, to help the economy significantly. Moreover, a vocal minority on the Fed’s rate-setting Federal Open Market Committee is against further easing. In any case, monetary policy cannot address only liquidity problems – and banks are flush with excess reserves.

Most importantly, the US – and many other advanced economies – remains in the early stages of a deleveraging cycle. A recession caused by too much debt and leverage (first in the private sector, and then on public balance sheets) will require a long period of spending less and saving more. This year will be no different, as public-sector deleveraging has barely started.

via EconoMonitor : Nouriel Roubini’s Global EconoMonitor » The Straits of America.

December 5, 2011

Romer: Expectations Wallop Needed to Avert 40-Year Recovery

The Federal Reserve should set a “nominal target” for growth in the nation’s gross domestic product that is well above its current low rate for coming out of a recession, said Christina Romer, now an economics professor at the University Of California, Berkeley.“One thing I think it would do is pack a really big expectations wallop,’’ said Romer, speaking at the Super Bowl of Indexing wealth management conference here. “A new operating strategy is something that could really break through and affect people’s behavior.” Such a “new operating strategy” is needed to get the economy on the kind of course normally seen after a recession. In the first nine quarters after the 1982 version, the economy grew at an annual rate of 6.3 percent. In the first nine quarters of this edition, the rate has been 2.4 percent, barely at the nation’s historical rate of growth. And if a new approach is not taken, it could be decades before the nation is back at full employment.

via Romer: Expectations Wallop Needed to Avert 40-Year Recovery.

November 30, 2011

Central Banks Take Coordinated Action – WSJ.com

WASHINGTON — The world’s major central banks launched a joint action to provide cheap, emergency U.S. dollar loans to banks in Europe and elsewhere, a sign of growing alarm among policy makers about stresses in Europe and in the global financial system. The Fed, ECB and other central banks took coordinated action to support the global financial system as Europe’s rolling debt crisis continues to trouble markets. The coordinated action doesn’t directly address Europe’s government-debt and budget woes. Instead, it is aimed at alleviating the impact of those troubles on global markets. Moreover, it raises the prospect of other steps by central bankers to prevent a repeat of the 2008 financial crisis.

via Central Banks Take Coordinated Action – WSJ.com.

November 29, 2011

Quick Overview

Looks like something positive is brewing in Europe, but I don’t want to jump the gun. China looks weak, US probably through its worst, Europe still faces plenty of pain even if fiscal reform and euro-bonds introduced. Game changer would be QE/asset purchases by Fed and ECB.

November 26, 2011

NY Fed Issues Mea Culpa That Nobody Saw at 6PM on Black Friday | ZeroHedge

The 3 big reasons the Fed had gotten it wrong:

Misunderstanding of the housing boom. Staff analysis of the increase in house prices did not find convincing evidence of overvaluation (see, for example, McCarthy and Peach [2004] and Himmelberg, Mayer, and Sinai [2005]). Thus, we downplayed the risk of a substantial fall in house prices. A robust approach would have put the bar much lower than convincing evidence.
A lack of analysis of the rapid growth of new forms of mortgage finance. Here the reliance on the assumption of efficient markets appears to have dulled our awareness of many of the risks building in financial markets in 2005-07. However, a March 2008 New York Fed staff report by Ashcraft and Schuermann provided a detailed analysis of how incentives were misaligned throughout the securitization process of subprime mortgages–meaning that the market was not functioning efficiently.
Insufficient weight given to the powerful adverse feedback loops between the financial system and the real economy. Despite a good understanding of the risk of a financial crisis from mid-2007 onward, we were unable to fully connect the dots to real activity until 2008. Eventually, by building on the insights of Adrian and Shin (2008), we gained a better grasp of the power of these feedback loops.

[The author of the NY Fed report] then added that perhaps the biggest reason for the failure was “complacency,” with which I heartily concur, but to which I would also add hubris and stupidity.

via NY Fed Issues Mea Culpa That Nobody Saw at 6PM on Black Friday | ZeroHedge.

November 2, 2011

Fed Expresses Modest Optimism – WSJ.com

Federal Reserve officials Wednesday refrained from taking new steps to charge up the economy as they expressed some modest optimism about the recovery while they continue to debate ways to bring unemployment down without stoking inflation.Meanwhile, Fed Chairman Ben Bernanke, in a news conference Wednesday after the Fed announcement, offered little hope for a pickup in U.S. growth after years of economic weakness, saying the pace of progress is “likely to be frustratingly slow.”

via Fed Expresses Modest Optimism – WSJ.com.