Chillin' out till it needs to be funded
After a muted policy statement consistent with the direction set in the June conference/FOMC review, this month’s policy statement talks of declining unemployment, continuing the $400 bln Operation Twist (with MBS?) and a welcome piece of news on Tax haven legislation bringing back $1.4 tln into the country letting the Fed grounds to issue larger spending power in its hands with new Treasuries to replace the sold down amount ( 5.25-8.25% tax on bringing back the money and/or reinvesting it)
Also Super committee member, Democrat Harkin is playing around with another edition of a 3 basis point Financial Transaction tax , the first after 1967 (FDR) that can easily net $2 bln for the government’s deficit spending ambitions
The Policy statement, was to be followed by new projections forming the basis. Earlier projections targeted inflation between 1.5-1.9% in 2013 now 2014 and this could have been higher but for the need to move slow. The good Jobs number of 110k additions with Services adding jobs and September number also revised for ADP payrolls to above 110k, the US recovery looks more than likely. The FOMC statement apart from indicating a modest pace of recovery also works at warning against linkages in Greece. The G20 meets tomorrow
“Economic growth strengthened somewhat in the third quarter,” the central bank said in its statement. “Nonetheless, recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated.”
“There are significant downside risks to the economic outlook, including strains in global financial markets,” it warned.
The 10 year yields have moved on up but the 2 year notes are still down on yield at around 0.23% and the ed looks a mite helplesss in just hoping along with a last ditch QE3 that is shuttering markets and sentiment
Fed’s revised Economic projections expect GDP recovery to now extend to 2014 (3.5-3.9%) while the 2013 unemployment rate recovery to 7-7.5% has also been shifted up to 2014 (6.8-7.7%) Inflation for 2011 is expected to be just below 3% and likely to stay just below 2% in 2013 and beyond
Key Bernanke Speak
!> We overestimated the pace of recovery..
!> Problems are in the Housing sector a re a key reason why US recovery is not complete
!> Ultimately we would like to move our portfolio back to Treasuries only ( in the long term)
!> Purchases of UST are primarily China and Japan Forex reserves and is not the same as investing in plant and equipment
!> MF Global: NY Fed approved PD in February this year when they qualified. SEC and CFTC are the regulators. ..Making them PD did not deem any approval
!> No significant impact on Financial stability, not qualified as SIFI
!> Projections have been toned down: We downgraded growth as ‘leveraging in the household sector has slowed’ and ‘drags are stronger than we thought’
!> Answering Mike Mckee(Bloomberg) – Monetary Policy has impacted decisions like purchases and investments but effects have been blunted for example in the Mortgage market ( explaining to the Average American what we do at the Fed ) growth happened in 2009 for example showing the Fed helped..
!> “Policy is highly accommodative now” ” We will continue to Observe” ( On why not MBS purchases now) -We do not shirk responsibility..a broad range of policies can affect growth and employment ..
Earlier Bernanke speak