Fed signals pullback in liquidity support

[ASH]

Fed signals pullback in liquidity support

In the Financial Times:

The US central bank said it would close the existing currency swap lines with foreign central banks by February 1. It also affirmed that it plans to terminate most of its special domestic liquidity programmes on that date and others a few months later.

...

The Fed also said it was sticking to its existing plan to taper off and complete its scheduled $1,425bn purchases of securities issued by Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, by March 31.

Although nothing is likely to happen with the federal funds rate in the near term, it seems to me that termination of the other facilities as described above can likely be used for market timing.

[ThePythonicCow]

Re: Fed signals pullback in liquidity support

Fed signals pullback in liquidity support

...

Although nothing is likely to happen with the federal funds rate in the near term, it seems to me that termination of the other facilities as described above can likely be used for market timing.

Perhaps the Fed is reversing course on the Dollar and Treasuries, giving them both a bid with a combination of (1) the European and Arab problems and (2) this renewed interest in sound fiscal management of the Dollar and Treasuries.

I predict more bad news from Europe and Arabia, and a continuing stronger bid under the Dollar and Treasuries, for perhaps another two to four months.

[oddlots]

Re: Fed signals pullback in liquidity support

There's I thought a good piece about this here:

http://www.zerohedge.com/article/wha...acilities-mean

There's more here, but this seemed the most relevant bit.

"...the Fed is ending these facilities woefully early, merely to "demonstrate" how healthy the system is. Well, it isn't, and banks will come back running as soon as the CRE roll approaches (good luck getting securitization up to $250 billion a year by 2012). So why the charade? And why the hypocrisy, when the Fed has effectively replaced the liquidity programs' direct intervention by such other programs as Quantitative Easing whose UST and MBS/Agency purchases now total over $1.2 trillion and which at their peak on March 31, will have the same notional outstanding as the liquidity facilities, when these peaked in January 2009. The chart below demonstrates the change in time of the two key parts of the Fed's current assets: on one hand the various liquidity facilities, the bulk of which will be eliminated by February 1, and the QE "Purchase Prgoram" on the other hand.

[ASH]

Re: Fed signals pullback in liquidity support

Thanks for posting that graph. I hadn't realized that QE had been taking up the slack from other scaled-back liquidity facilities.

I think this is likely the 'policy mistake' that will trigger another leg down in the stock market. The mistake isn't going to be the Fed raising the federal funds rate too soon -- it's going to be withdrawal of other liquidity supports while loan delinquencies continue to rise.

[GRG55]

Re: Fed signals pullback in liquidity support

Perhaps the Fed is reversing course on the Dollar and Treasuries, giving them both a bid with a combination of (1) the European and Arab problems and (2) this renewed interest in sound fiscal management of the Dollar and Treasuries.

I predict more bad news from Europe and Arabia, and a continuing stronger bid under the Dollar and Treasuries, for perhaps another two to four months.

Cow: When you refer to Arabia are you referring to the Dubai situation? Or do you expect something more from somewhere else in that region?

[ThePythonicCow]

Re: Fed signals pullback in liquidity support

Cow: When you refer to Arabia are you referring to the Dubai situation? Or do you expect something more from somewhere else in that region?

I don't know if more will come after Dubai or not. For that, I look to experts such as yourself.

That is, I was referring to "Dubai and whatever if anything in addition might come from that region."

It might be that Dubai has follow on affects elsewhere in the world -- say for example of some British bank had to much invested in Dubai.

[GRG55]

Re: Fed signals pullback in liquidity support

I don't know if more will come after Dubai or not. For that, I look to experts such as yourself.

That is, I was referring to "Dubai and whatever if anything in addition might come from that region."

It might be that Dubai has follow on affects elsewhere in the world -- say for example of some British bank had to much invested in Dubai.

Thanks for the clarification. BTW, I am certainly no expert...just trying to peer through the murk of one of the world's most opaque regions...