Opinion

Felix Salmon

Counterparties: The Fed puts (possibly) doing something back on the table

June 6, 2012

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com

The Fed could do nothing, or it could try to repeat what it’s already done, while remaining vigilant, if things get worse. Reportedly.

Jon Hilsenrath, the WSJ‘s top Fed reporter — whose words have been known to launch the vaunted “Hilsenrally” – reports this morning that “disappointing U.S. economic data” and worries over Europe “have prompted a shift at the Federal Reserve.” As it happens, “the possibility of action” is now back on the table.

If this edition of the Fed’s latest strategic leaking – what Kate Mackenzie calls the “Fed(wire)” –  feels a bit underwhelming, it’s because the Fed has been quite busy over the last four years; its balance sheet has more than tripled since the financial crisis, while inflation has been kept under control and unemployment has remained persistently high.

So what specifically could the Fed do now? For one, Hilsenrath hints at an extension of Operation Twist. Morgan Stanley puts the odds at another round of quantitative easing at a strangely precise 56%. There is also some talk of coordinated global action, in which the Fed would further entice banks to swap their currencies for dollars.

It’s less clear if any of this will help. The WSJ‘s David Wessel evaluates whether the Fed’s post-crisis quantitative easing program has achieved its four main goals: signaling a long period of low rates (success); cutting interest rates for consumers and businesses (success); encouraging investors to buy higher-yielding securities (mixed results); and “pushing the dollar lower, giving exports a lift” (mixed results).

The problem, Wessel figures, is that “with rates already so low and so much else going on, the added benefits of another round of asset buying may be too small to make much difference.” And even if the divided Fed decides to act, Hilsenrath writes, “The Fed’s next meeting, June 19 and 20, could be too soon for conclusive decisions.” – Ryan McCarthy

On to today’s links:

Awesome
“Prospectus for Silicon Valley’s next hot tech IPO, where nothing could possibly go wrong” – McSweeney’s

Regulations
The JOBS Act is helping America by allowing “empty shells with almost no employees” to go public – WSJ

EU Mess
The ECB doesn’t change rates, tells Europe to fix itself and markets jump anyway – NYT
Greece, the cradle of Western thought and where citizens attack tax collectors with whips – NYT
The EU is on autopilot, just like pre-1914 Europe and Cold War weapons systems – Foreign Policy

Compelling
The microinsurance revolution – NYT
How microinsurance fights AIDS – Felix

Regulators
Team America, Risk Police: Ex-regulators form a group to do what current regulators should do – NYT

Takedowns
Can someone please buy David Brooks an intro economics textbook? – Center for Economic and Policy Research

Remuneration
AIG, Bank of America and GE each pay their auditors more than $100 million a year – Bloomberg Ticker

RIP
Ray Bradbury, author of Fahrenheit 451 and The Martian Chronicles has died – io9

Dickensian
Unemployed Brits were bused in for unpaid work during the Queen’s Jubilee – The Guardian

Oxpeckers
5,000 words on why David Simon is wrong about paywalls – CJR

Price Points
Tell HBO how much you’d pay for a stand-alone HBOGO subscription – Take My Money HBO

Yikes
Bill Clinton suggests the US is already in recession – CNBC

Comments
4 comments so far | RSS Comments RSS

as to whether the Fed’s post-crisis quantitative easing program has achieved its four main goals: signaling a long period of low rates (success); so what good did that do? why act today if you know rates are going to be low tomorrow?

cutting interest rates for consumers and businesses (success); but 96% of small businesses say they have no need to borrow more…

encouraging investors to buy higher-yielding securities (mixed results); mixed results? with today’s flight to safety?

and “pushing the dollar lower, giving exports a lift” (mixed results). imports continue to rise faster, subtracting from GDP…

Posted by rjs0 | Report as abusive
 

The Foreign Policy article is funny. The first hostile act of World War I was the German invasion of France, Belgium and Luxembourg. Which they did not because they wanted a European War of conquest, heavens no! The train schedules just forced them to invade.

Which was the most ridiculous statement ever made about a war until the Japanese argued that they “wanted to surrender” in August 1945 but couldn’t.

Posted by johnhhaskell | Report as abusive
 

Felix, I have one short question: At what number QE^n will the fed admit that its policies have failed? Maybe they can be held to that number.

Attempting the same policies which have failed to work again and again has another name, which we all know.

Regards.

Posted by TMyers | Report as abusive
 

“Attempting the same policies which have failed to work again and again has another name, which we all know.”

What name is that? “Trickle-down economics”? Maybe our problem is that the wealthy aren’t yet rich enough to create jobs? We need to give them even MORE money!

Posted by TFF | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •