The Banking and Strategy Initiative

Chillin' out till it needs to be funded

US Economy: You can leave it to Ben? | FOMC Meeting October 23-24, 2012

Clint Eastwood’s newly launched Anti Obama Campaign inadvertently combined with the FOMC meeting announcement along expected lines to bring out a likely mean streak in equities in afternoon trading. As expected the October announcement, as it is not to be followed by a press conference and comes barely two weeks before Obama’s reelection date, refused to stir things up and as FT wrote as much in its pre morning analysis, just pointed out to the healthy growth in housing from depressed levels and the continuing slow progress in employment with business investment continuing to suffer in the US Economy.

This being the Fed’s Policy announcement, its being along expected lines still underwrites a dip inEquities before markets continue on the expected weakening of the dollar with the $40 Bln in flow buying by the Fed/Treasury under Operation Twist next expected to add to the $45 B open ended MBS Bond buying program announced in September, after the Fed meeting in December.

The outgoing Fed President Ben Bernanke is also unlikely to further ruffle any feathers before he leaves in January 2014, irrespective of who enters White House in January 2013. That also means that given the slow pace of recovery, the open ended $45/$85B QE program is likely to continue throughout 2013 and for the first month of 2014 before it is seriously reconsidered as the conviction that Monetary Policy has really done its bit fails to move the inbuilt belief across all asset markets that a supportive policy from the Fed will ease the recovery and thus allowing the Fed to expand its Balance sheet from its current $2.85 Tln which was where it reached in June itself at the height of Operation Twist buying.

Earlier New Home Sales reached a record 389,000 even as Prices fell 3% on month to an average $242k which was still an increase in double digits over data of October 2011. Also, growth was aided by a duble dgit jump in the South as in the Existing Home Sales data and remains miniscule compared to pre crisis levels. Purchase MBA report again showed a big 3% dip in Refi and a large overall dip as mortgage rates rose in the Week of October 19

The Fed meeting of October 2012 would count as one of the most eminently guessable with most fellow Economists from Goldman Sachs and Bloomberg’s McKee to holding the same opinion after an equally undescribable surprise in the September meeting which actually used ideas from the Jackson Hole conference to give a last unlimited tag of support from the Fed to the faltering Economy linked to the progress in the labor market variously seen yet at no better than 6% unemployment by 2015, which though elevated from pre crisis levels could indeed be a good benchmark given the current hiatus in Europe and even China as it matures to a developed Economy

The press release from the Fed for the October meeting is here

English: A frame from a screencast from the US...

English: A frame from a screencast from the US House Financial Committee full committee hearing “An Examination of the Extraordinary Efforts by the Federal Reserve Bank to Provide Liquidity in the Current Financial Crisis which took place Tuesday, February 10, 2009, 1:00pm, 2128 Rayburn House Office Building. The frame shows Chairmen Ben Bernanke responding to a question posited by John E. Sweeney Full Committee (Photo credit: Wikipedia)

In today’s meeting the Fed reiterated its goals of maximum employment and price stabilityand in that light its mandate to continue liquidity provided by it as

the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.  The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed  securities in agency mortgage-backed securities.These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.


That could be a pointer to its desire to make the open ended MBS program worth $85B in so many words in the December review as Operation Twist  runs out in January 2013. The rest of the statement mostly kept the language and the impact same as in its 2012 policy till date except for reiterating the strength of the housing recoveryand the weakness in the labor market



Enhanced by Zemanta


%d bloggers like this: