Chillin' out till it needs to be funded
The Fed Policy statement underlined moderate growth in the Economy but a little too slow It today underwrote the US Economy for the $2800 bln as it enters a Hold period for the Economy on way to tightening rates if and when the Economy actually shows signs of heating up.
QE2 has already bloated the Fed Balance Sheet to $2800 bln and the Fed promise to keep that much amount in stimulus in the liquidity cycle ( to the limit of monetary policy) Treasuries did tick up but stay ranged between 2.96 and 2.97.
A run on Treasuries is unlikely as long as the stimulus is not overtly withdrawn. Any sales of securities by the Fed right now will be cycled back to the market in cash and securities. The Dollar’s immediate weakness will go towards keeping growth alive. The Fed was also more comfortable with inflation in the Policy statement as it expected Commodity inflation to cool down including dropping energy costs and there is a temporary situation in manufacturing due to disruptions in Japan
The Fed funds remain in the 0-0.25 percent range till the next meetings in August 9/September 20, 2011. The FOMC decision was unanimous. Bernanke’s press conference is about to begin as we publish this post. The Fed sees 2011 Core inflation at 1.5-1.8% and 2012 at 1.4% – 2%
Snippets from the press meet:
1. We have no ..why this slower growth is persisting..the banks are weak(sic!) though commodity inflation is coming down ..
2. It is important we take strong action to reduce the budget deficit ..
3. I’ve been a long time proponent of having an Inflation Target..
4. We’ll conduct stress tests on the banks, we’ll take measures to strengthen money market mutual funds..
5. WE always conduct Cost Benefit Analyses and the same is being done for Capital Requirements..