Deutsche Bank economists have tried to quantify what effect QE3 is likely to have on the U.S. economy. For an assumed $800 billion of purchases of both agency securities and Treasuries through the end of next year, the economy gets a little over half a percentage point lift over the course of two years and a net 500,000 jobs – or about two months’ worth of job creation in a typical strong recovery from recession.
In a historic shift in the way the Federal Reserve conducts monetary policy, the U.S. central bank last week announced an open-ended quantitative easing program where it has committed to continue buying assets until the country’s employment outlook improves substantially. Bank of America-Merrill Lynch credit analysts captured Wall Street’s reaction:
“Will he or won’t he?” That’s what investors, traders and policy-watchers in the financial markets are pondering, frozen at their terminals waiting to find out if Federal Reserve Chairman Ben Bernanke will persuade his colleagues to print more money this week.
(Corrects to show CRT is not a primary dealer)
Bond bulls are ready to charge after Friday’s July U.S. employment data, according to a survey by Ian Lyngen, senior government bond strategist at primary dealer CRT Capital Group.
Maybe the massive U.S. repo market isn’t as massive as we thought. That’s the conclusion of a study by researchers at the Federal Reserve Bank of New York that suggests transactions in the repurchase agreement (repo) market total about $5.48 trillion. The figure, though impressive, is a far cry from a previous and oft-cited $10 trillion estimate made in 2010 by two Yale professors, Gary Gorton and Andrew Metrick. The Fed researchers, acknowledging the “spotty data” that complicates such tasks, argue the previous $10-trillion estimate is based on repo activity in 2008 when the market was far larger, and is inflated by double-counting.
We’re pretty sure that Daniel Tarullo, the Federal Reserve’s point person on regulation, expects the United States will finally understand exactly what financial reforms are coming “some time next year.” But the Fed governor made doubly sure to qualify that statement lest anyone – especially any press “in the back” – take it as gospel.
from Mike Dolan:
Just one look at the whoosh higher in global markets in January and you'd be forgiven smug faith in the hoary old market adage of "Don't fight the Fed" -- or to update the phrase less pithily for the modern, globalised marketplace: "Don't fight the world's central banks". (or "Don't Battle the Banks", maybe?)
All four Federal Reserve policymakers who dissented on U.S. central bank policy this year will lose their votes next year. That could make the New Year full of love, but not necessary free from dissent, Dallas Fed President Richard Fisher joked on Friday.
from Christopher Whalen:
"Our purpose is to lean against the winds of deflation or inflation, whichever way they are blowing." -William McChesney Martin Jr., Chairman, Board of Governors of the Federal Reserve System