Jonathan's Feed
Dec 3, 2013
via MacroScope

For the Fed, pros and cons of lowering yet another rate

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Now that the Federal Reserve is finally – we think for real this time – preparing to reduce its bond buying program, trading floors are abuzz with what it could do at the same time to offset such a move. Tapering its quantitative easing (QE) program would signal, after all, that the Fed thinks the U.S. economy is healing and that monetary policy needn’t be as accommodative as it has been. But since inflation is still too low and unemployment is still too high, the thinking goes, the central bank will want to do something that proves it is serious about keeping interest rates low for a while longer in order to make sure the economic recovery is durable.

There are a handful of ways the Fed could say it still cares when it trims QE, be it this month or some time in the first half of next year. But one that has traders’ tongues wagging is cutting the interest rate the Fed pays banks on excess reserves. The so-called IOER has been set at 0.25 percent since the central bank introduced it in 2008, when the economy was on edge. With every additional asset the Fed buys under QE it creates reserves that the private banks often end up parking at the Fed itself, given rates are so low across the board. As it stands, reserves are $2.5 trillion and counting.

Dec 2, 2013

Fed official strongly backs proposed repo tool, cites policy

NEW YORK (Reuters) – The Federal Reserve’s point person in financial markets on Monday gave a strong and detailed endorsement of a proposed tool for smoothing the eventual tightening of U.S. monetary policy.

The tool — known as a fixed-rate full-allotment reverse repo facility — “offers a promising new technological advance” for conducting policy, Simon Potter, who runs the New York Fed’s market operations, said in remarks to bond traders.

Dec 1, 2013

Fed unlikely to redraw markers for U.S. rate rise

SAN FRANCISCO/NEW YORK, Dec 1 (Reuters) – Federal Reserve
policymakers have cooled to the idea of explicitly raising the
bar on future interest rate increases, a sign the U.S. central
bank is angling for a return to more subtle – and familiar -
ways of explaining how it plans to steer the economy.

The Fed, still struggling to boost the U.S. recovery from
the Great Recession, remains intent on assuring investors that
easy monetary policy is here for the long haul. Households and
businesses, in the Fed’s view, need low borrowing costs to get
spending and investment back on a self-sustaining path.

Dec 1, 2013

Fed unlikely to redraw markers for rate hike

SAN FRANCISCO/NEW YORK (Reuters) – Federal Reserve policymakers have cooled to the idea of explicitly raising the bar on future interest rate hikes, a sign the U.S. central bank is angling for a return to more subtle — and familiar — ways of explaining how it plans to steer the economy.

The Fed, still struggling to boost the U.S. recovery from the Great Recession, remains intent on assuring investors that easy monetary policy is here for the long haul. Households and businesses, in the Fed’s view, need low borrowing costs to get spending and investment back on a self-sustaining path.

Nov 26, 2013
via MacroScope

Auto-pilot QE and the Federal Reserve’s taper dilemma

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┬áIt wasn’t supposed to be this way.

When the U.S. Federal Reserve launched its third round of quantitative easing, or QE3, it was hailed as an “open-ended” policy that would last as long as needed. Most important for investors, the pace of the bond buying – which started at a somewhat arbitrary $85 billion per month – would be “data dependent.” Especially throughout the spring, officials stressed they were serious about adjusting the dial on QE3 depending on changes in the labor market and broader economy. But as the unemployment rate dropped to 7.3 percent last month from 8.1 percent when the program was launched in September, 2012, the bond-buying has effectively been on auto-pilot for 14 straight months.

Now, some are wondering whether the decision not to at least tinker with the program has made the first so-called taper a bigger deal than it needed to be. “When you don’t react to small changes in the data with small changes in the policy then the markets tend to read more into it when you do change policy,” St. Louis Fed President James Bullard said last week after a speech in Arkansas. “It makes policy a little more rigid than it maybe should be.”

Nov 21, 2013

Fed officials signal next policy battle: rate guidance

/ASHEBORO, NC (Reuters) – As the Federal Reserve nears a decision to pare its bond-buying program, top policymakers on Thursday turned to a new monetary policy battlefront: a growing debate over how the Fed should signal the timing of eventual interest rate hikes.

Top Fed officials at opposite ends of the policy spectrum still disagree on the optimal future for the Fed’s $85-billion-a-month bond-buying program.

Nov 21, 2013

Fed’s Bullard: keep buying bonds as U.S. inflation muted

ROGERS, Arkansas (Reuters) – Accommodative bond-buying must continue for now despite possible inflation risks in part because there are no signs of price rises so far, St. Louis Federal Reserve President James Bullard said on Thursday.

Bullard, a voter on monetary policy this year, added he expects the U.S. central bank’s balance sheet to “eventually” return to a pre-financial-crisis level of around $800 billion, though “it may take quite a while.”

Nov 20, 2013

Fed’s Dudley says job growth not as strong as desired

NEW YORK, Nov 20 (Reuters) – Recent growth in the U.S. job
market has been “ok” but not as strong as the Federal Reserve
would like to see, New York Fed President William Dudley said on
Wednesday.

Dudley, an influential official at the U.S. central bank,
said workforce productivity will be a focus for the Fed and also
a “wild card” in the prospects for overall gross domestic
product growth. He predicted GDP growth would pick up to a pace
of between 2.5 and 3 percent next year, and yet stronger in
2015.

Nov 18, 2013

Fed’s Dudley ‘hopeful’ on recovery; Plosser calls for capping QE

NEW YORK (Reuters) – Top Federal Reserve officials from opposite sides of the policy spectrum pointed to improvement in the U.S. economy on Monday, adding more weight to the notion that the central bank is getting close to reducing the pace of its monthly asset purchases.

William Dudley, president of the Federal Reserve Bank of New York and one of the staunchest supporters of the Fed’s easy-money policies, cited labor market improvements and stronger-than-expected growth in the third quarter as signs of optimism for the U.S. economic recovery.

Nov 18, 2013

Fed’s Dudley, a staunch dove, turns upbeat on U.S. economy

NEW YORK (Reuters) – William Dudley, an influential U.S. central banker who has been one of the staunchest supporters of easy-money policies, on Monday said he was “getting more hopeful” on prospects for the beleaguered U.S. economic recovery.

The president of the Federal Reserve Bank of New York pointed to an improvement in the labor market last month and better-than-expected gross domestic product (GDP) growth in the third quarter, and he predicted a rise in economic growth next year and in 2015.