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Fed keeps buying bonds at $85 billion monthly pace
Posted on 6/19/13 at 1:23 pm
Posted on 6/19/13 at 1:23 pm
LINK
quote:
WASHINGTON (Reuters) - The Federal Reserve on Wednesday said it would keep buying $85 billion in bonds per month and gave no explicit indication that it was close to scaling back the program, despite intense market speculation it could soon start drawing it to a close.
Posted on 6/19/13 at 1:28 pm to OnTheBrink
Nobody was expecting them to taper this meeting. The key was the change in language, which was that the outlook for growth is a little better and labor is showing "further improvement". 5 basis point spike up in the 10-year though, we'll see how the next few rounds of job figures are before they even start talking about actually tapering.
Posted on 6/19/13 at 1:44 pm to OnTheBrink
In the FOMC statment it also reitierated that the federal funds rate will remain at 0 to 1/4 as long as unemployment remains above 6.5% and inflation is below 2%.
Overall, very similar statment to the last few, with a continued purchase of 45B / month of long term treasury securities and 40B / month of MBS.
Overall, very similar statment to the last few, with a continued purchase of 45B / month of long term treasury securities and 40B / month of MBS.
Posted on 6/20/13 at 2:59 am to OnTheBrink
I'm no expert and would like to get anyone's input on the following as background information.
One way of looking at GNP is GNP = Money Supply (M2) X Money Velocity (M2V).
GNP and M2 are calculated from observable data but M2V is indirectly calculated as M2V = GNP / M2.
(Stay with me, my head hurts too...)
Here is M2, Money Supply: Fed Data.
Here's M2V, Money Velocity: Fed Data.
Ok, here we go. Please jump in any time.
Inflation has two components, Money Supply and Money Velocity. You have to have both to create inflation. We can see from the graphs why we are having such low inflation currently. The Supply is there thanks to the QE, but the Velocity is at historically low levels. All that money has not gotten out of the banks. For those fans of Japanese deflation, this should look familiar.
Currently, the Fed has two main policies working: the Zero Interest Rate Policy (ZIRP) and the QE. The ZIRP is a standard tool of Central Banks, QE is not. QE is extraordinary. So it may be assumed that QE will be tapered down first, leaving the ZIRP in place longer.
But to avoid deflation, the Money Velocity must be increased. That means the Fed must make it more expensive for the banks to hold the money than to put it into circulation. This requires rate increases which will cause some inflation. But it depends on relative Money Supply. Just as we have no threats of inflation currently due to lack of Velocity, with the tapering of the QE funding, the Money Supply should drop, thus (hopefully) keeping inflation under the Fed's control.
This is too simplistic but it is food for thought. It could be a scenario that Chairman Ben thinks of when he drinks too much coffee. The current market? Well, The Herd is confused. As the previous poster allowed, good news is bad, bad news is good. But long run, this bull market has all the elements to continue until Velocity turns the corner and starts to increase.
Your thoughts / criticisms welcomed.
One way of looking at GNP is GNP = Money Supply (M2) X Money Velocity (M2V).
GNP and M2 are calculated from observable data but M2V is indirectly calculated as M2V = GNP / M2.
(Stay with me, my head hurts too...)
Here is M2, Money Supply: Fed Data.
Here's M2V, Money Velocity: Fed Data.
Ok, here we go. Please jump in any time.
Inflation has two components, Money Supply and Money Velocity. You have to have both to create inflation. We can see from the graphs why we are having such low inflation currently. The Supply is there thanks to the QE, but the Velocity is at historically low levels. All that money has not gotten out of the banks. For those fans of Japanese deflation, this should look familiar.
Currently, the Fed has two main policies working: the Zero Interest Rate Policy (ZIRP) and the QE. The ZIRP is a standard tool of Central Banks, QE is not. QE is extraordinary. So it may be assumed that QE will be tapered down first, leaving the ZIRP in place longer.
But to avoid deflation, the Money Velocity must be increased. That means the Fed must make it more expensive for the banks to hold the money than to put it into circulation. This requires rate increases which will cause some inflation. But it depends on relative Money Supply. Just as we have no threats of inflation currently due to lack of Velocity, with the tapering of the QE funding, the Money Supply should drop, thus (hopefully) keeping inflation under the Fed's control.
This is too simplistic but it is food for thought. It could be a scenario that Chairman Ben thinks of when he drinks too much coffee. The current market? Well, The Herd is confused. As the previous poster allowed, good news is bad, bad news is good. But long run, this bull market has all the elements to continue until Velocity turns the corner and starts to increase.
Your thoughts / criticisms welcomed.
Posted on 6/20/13 at 9:33 am to OnTheBrink
The Dow down 200, 1.5 hours in. How long is this supposed to last? You guys that are
about this, do you have money in the stock market now? Or are you guys just waiting for it to get low so you can jump back in?
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