Chillin' out till it needs to be funded
The Fed closed out September’s FOMC meeting with a new $404 bln allocation of stimulus to sell its short term holdings and buy loneger dated 10 y US treasuries. Some have averred the Fed should sell the 2-3 yr term US securities but the Fed may focus more on the 90 day and 6 month bills which are at 0.33% and lower. The maturing mortgage and agency bonds proceeds will be reinvested in the Mortgages market in a bid to keep alive the possibility of housing market prices firming up with latent demand coming back after more than 3 years of depression in the sector
Contrary to the bullish undertone with which US markets waited for Bernanke’s pronouncement, the program underlines Central Banks’ helplessness as a global recession crystallises with subdued inflation and growth However, low-level growth will continue to show up US production and that of Asia on the global charts as Europe stands desolate and Latin America much like the rest of the world undecided
The Fed will target purchases of long dated bonds of term 6 – 30 years. Yields on the 10 year however plunged further to 1.87% negating any firmness in the prices later. The 30 YU yield also plunged from its all time low of 3.26% Operation Twit had a high 3 dissents recorded in the FOMC vote,a sign for the rougher arguments in the US and even the UK which mulls more stimulus in October The Fed had decided to keep short-term interest rates near 0 till 2013 in its August meeting.
The resulting firming up of Commodities as the Dollar may be unable to continue iots upward march may yet cause more heartburn in Asia at the easy flow of money from the US and UK markets even as Europe gets used to the idea of a Greek default
Asia has an unlikely ally in the young Tea party Republicans (Finpost) who have implored Ben Bernanke to desist from further stimulus Markets remained down as Moody’s had already downgraded the banks ahead of Bernanke’s speech
Growth projection for the US and globally have been pared down to below 2% and 4% respectively , last at the IMF this week US experts see inflation in Asia still ahead of the high interest rates in the region leaving more tightening on the table while most global economy watchers have already posited that the stimulus addition to the US and UK is probably overdone despite the slow growth