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

June 6, 2012

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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:

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

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

The microinsurance revolution – NYT
How microinsurance fights AIDS – Felix

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

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

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

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

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

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

Bill Clinton suggests the US is already in recession – CNBC


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