seen this movie before?: fed looks for "exit"

[jk]

wasn't it just last spring that the fed was talking about its exit strategy? then in sept came the announcement of qe2. we should start a pool on when we get qe3.

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Fed Gives Markets Clues on Exit From Unprecedented Easing


The Federal Reserve is trying to let investors know that, even as it pursues an unprecedented expansion of monetary stimulus, it hasn’t forgotten about exiting.

In the week after the Federal Open Market Committee’s Jan. 25-26 meeting, policy makers issued three announcements about expanding the number of counterparties for transactions that will help drain the record amount of cash added to the financial system. Brian Sack, the New York Fed’s markets-group head, added more details about the preparations in a Feb. 9 speech, and New York Fed President William Dudley reiterated last week that officials have the ability and will to withdraw their stimulus when necessary.

The disclosures come as a decline in the unemployment rate and growth in manufacturing underscore that the economic recovery is gaining momentum. Policy makers need to “communicate effectively” about their exit strategy to build confidence in the Fed and anchor inflation expectations, Dudley said Feb. 28 in a New York speech. The plan to buy $600 billion of Treasuries through June sparked the harshest political backlash against the Fed in three decades, with Republican lawmakers warning the stimulus risks a surge in prices.

etc

http://www.bloomberg.com/news/2011-0...ed-easing.html

[WildspitzE]

Re: seen this movie before?: fed looks for "exit"

For a while, it looked like they were not just talking (although we all knew that they would cave)... but then December rolled around (and proved us right).

http://research.stlouisfed.org/publi...usfd/page3.pdf

[GRG55]

Re: seen this movie before?: fed looks for "exit"

wasn't it just last spring that the fed was talking about its exit strategy? then in sept came the announcement of qe2. we should start a pool on when we get qe3.

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...

They could well start to withdraw some of the liquidity starting mid-year in an effort to take the froth off the commodity inflation rate so they don't have to threaten to raise rates. This "exit strategy", while it lasts, added to the Republican led squeeze on fiscal expansion will be Amerca's version of "austerity"...

[Southernguy]

Re: seen this movie before?: fed looks for "exit"

Very interesting graph, monetary base grew 275 billion in three months.
If they don´t do qe3 trasury yields shall go up automatically, no need to raise rates. Maybe it all depends on the stock market. The objective of qe2 was propelling assets up; that is bonds and stocks.
Probably it´s all up to how these are faring by June.

[GRG55]

Re: seen this movie before?: fed looks for "exit"

Very interesting graph, monetary base grew 275 billion in three months.
If they don´t do qe3 trasury yields shall go up automatically, no need to raise rates. Maybe it all depends on the stock market. The objective of qe2 was propelling assets up; that is bonds and stocks.
Probably it´s all up to how these are faring by June.

Treasury yields have gone up since the start of QE2. There's no assurance that starting QE3 is going to change that trend.

[jk]

Re: seen this movie before?: fed looks for "exit"

Treasury yields have gone up since the start of QE2. There's no assurance that starting QE3 is going to change that trend.

there's also no assurance that NOT starting a qe3, thus removing the fed's support from the treasury market, is going to change that trend. looks like there's just not enough demand for the tidal wave of treasury debt, and rates are going to rise either way. we've finally got a clear sense that the 30 year bond bull has passed.

[charliebrown]

Re: seen this movie before?: fed looks for "exit"

yes rates rose after QE2, but maybe they would have risen more with no QE2. If the fed has to dump 500B of treasury and housing paper, to cool the commodity markets, just who is going to be the buyer? Gross? China? New friendly Iranian Gvt

[GRG55]

Re: seen this movie before?: fed looks for "exit"

yes rates rose after QE2, but maybe they would have risen more with no QE2. If the fed has to dump 500B of treasury and housing paper, to cool the commodity markets, just who is going to be the buyer? Gross? China? New friendly Iranian Gvt

Gross. That's why PIMCO went underweight is my belief.
http://www.itulip.com/forums/showthr...-Dumps-US-Debt.

The purpose of QE programs is to promote inflation. The lack of QE will have a disinflationary effect. As jk has pointed out elsewhere, commodities, stocks, etc are vulnerable in that environment. Bonds should be a good trade for PIMCO in that portion of the cycle. I expect they plan to sell those bonds, after the lag, when the FED inevitably starts buying again under the next round of QE - once it can engineer the next deflation scare to frighten Congress who will again be fully supportive of renewed FED monetary easing efforts as the 2012 election cycle progresses.