Fed Tapering: Quantitative Easing is Dead, Long Live Quantitative Easing!

Posted: December 19, 2013 in Uncategorized
Tags: , , ,

Finally the tapering has commenced and the market rallied!

Why first of all it is just USD 10bn a month …and what is more just 5bn of Treasuries (the other is mortgage securities), than they said they will anyway keep tapering/low interest until 2015 at least and the taper was already in (weakness since Nov). Plus there is consistent talks that they are studying how to effectively push banks to give to the economy the money (the free money given to the banks now are re-deposited by the FED) and they cannot risk to upset the bond market. As usual it would take some days (and the press release) for the market to digest the info.

The QE Bull market is dead, long live the Bull Market!

Some extract from the speech – transcript – I just bold the important bits.

“We have emphasized that these numbers are thresholds not triggers, meaning that crossing the threshold would not lead automatically to an increase in the federal funds rate but would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase. With many FOMC participants now projecting that the 6.5-percent unemployment threshold will be reached by the end of 2014, the committee decided to provide additional information about how it expects its policies to evolve after the threshold is crossed.”

If incoming information supports the committee’s expectation of further progress toward its objectives, the committee is likely to reduce the pace of monthly purchases in further measured steps in future meetings. However, the process will be deliberate and data-dependent. Asset purchases are not on a preset course.

“If we are making progress in terms of inflation and continued job gains….I imagine we will continue to do probably at each meeting a measured reductionThat would take us to late in the year, certainly not by the middle of the year. If the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two. On the other side, if things really pick up and, of course, we could go a bit faster, but my expectation is for similar moderate steps going forward throughout most of 2014.

“The recovery clearly remains far from complete with unemployment still elevated, with both underemployment and long-term unemployment still major concerns. We have also seen ongoing declines in the labor force participation, which likely reflects not only longer-term influences such as the aging of the population but also discouragement on the part of potential workers. Inflation has been running below the committee’s longer run objective of 2 percent. The committee recognizes that inflation persistently below its objective could pose risks to economic performance and is monitoring inflation developments carefully for evidence that inflation will move back towards its objective over time.”

 

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