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

November 26, 2013

 It 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.

The limits of Federal Reserve forward guidance on interest rates

November 4, 2013

The ‘taper tantrum’ of May and June, as the mid-year spike in interest rates became known, appears to have humbled Federal Reserve officials into having a second look at their convictions about the power of forward guidance on interest rate policy.

Time for Fed to rethink its forward guidance?

October 8, 2013

Federal Reserve officials have largely acknowledged by now that leading markets to believe the central bank would reduce its bond buying stimulus in September and then failing to do so was a communications blunder.

A market-dependent Fed?

September 18, 2013

It’s hard to shake the feeling that the Federal Reserve is about to begin pulling back on stimulus not just on the back of better economic data, but also because financial markets have already priced it in. The band-aid ripping debate over an eventual tapering of bond purchases that started in May was so painful, Fed officials simply don’t want to go through it again.

Note to markets: it’s been September all along for the Fed taper

September 17, 2013

Now that the outcome of one of the most anticipated Federal Reserve monetary policy meetings in history is just hours away, most investors and traders have settled on the view that the central bank will announce a plan to trim the pace of its $85 billion in monthly purchases of government and mortgage-backed securities on Wednesday. We just don’t know which, if any, of the two asset classes it will focus on, and by how much it will taper what it buys each month.

Fed taxonomy: Lacker is a hawk, not a bull

September 2, 2013

Not to mix too many animal metaphors but, generally speaking, monetary policy hawks also tend to bulls on the economy. That is, they are leery of keeping interest rates too low for too long because they believe growth prospects are stronger than economists foresee, and therefore could lead to higher inflation.

Post-Jackson Hole, Fed Septaper still appears on track

August 26, 2013

With all the QE-bashing that went on at the Federal Reserve’s Jackson Hole conference this year, it was difficult not to get the sense that, barring a major economic disappointment before its September meeting, the central bank is on track to begin reducing the monthly size of its bond purchase program, or quantitative easing.

The other big question at Jackson Hole

August 22, 2013

It will be a tough one to avoid. Federal Reserve Chairman Ben Bernanke’s absence from Jackson Hole is just one in a series of strong hints he will step down at the end of his second term in January. So, it is only natural that a lot of the talk on the sidelines of this year’s conference will inevitably revolve around the issue of his replacement.  

Time to taper the taper talk?

August 20, 2013

It’s been three months since the Federal Reserve first hinted that it’s going to have to ease off on its extraordinary monetary stimulus, but financial markets are still not settled on the matter.

Obama’s second chance to reshape the Fed

August 7, 2013

Lost in the bizarre Yellen vs. Summers tug-of-war into which the debate over the next Federal Reserve Chairman has devolved, is the notion that President Barack Obama is getting a second shot at revamping the U.S. central bank.