Chillin' out till it needs to be funded
Of course banks enjoyed the spree on Friday and as mentioned earlier, US markets have moved to 5% of their 1565 top on the S&P 500 (Network quote) but the $40B in bond buying as we mentioned to a select audience while we were away last week, is hardly likely to add any further liquidity According to FT of course, this is more to do with the lag in transmission to the people on the ground, which apparently Ben Bernanke has been listening to bloggers from US universities about. The Jackson Hole conference helped Ben Bernanke assiduously design this new MBS purchase program so that it could contract and expand as required by the markets and based on its effectiveness. The Market Monetarism effected by Ben Bernanke has been suggested by Scott Sumner and among others, Mike Woodford at Jackson Hole.
That Monetarism simply means that an unlimited liquidity may be provided in duration and amount if a said level of GDP growth has not been achieved, in this case thru bond buying. Apparently another Fed Governor, Charles Evans has sugggested goals like 7% Inflation and 3% PCE earlier. Check ou tthe bloggers at marketmonetarist.com for more easily understandable ad lib wisdom on the subject
I agree with FT and its sources when it suggests that bank origination desks ( those selling the home loans to you and me , well you because i am not in the US right now) are unlikely to push thru further rate cuts in lending rates as they are already short staffed and thus do not have extra hands to manage the incoming traffic. MBS bond s in the meantime had already made 30 basis points in yield on Friday rising and taking bank stocks with them including Mortgage biggie Wells Fargo (WFC) by 8% and this price rise will continue as markets are assured of the Feds buying more