Sign of Strength: Fed Eases Interventions

On Thursday the Fed announced that it will end or significantly curb the use of three emergency programs that it had been using to provide cash to brokers and money-market funds.

The developments are additional signs that the Fed sees improving financial markets and that it will begin honoring its promise to back out of its unprecedented interventions as market conditions warrant.

Michael Feroli, from JPMorgan Chase was quoted as saying, "The crisis is abating and the worst is behind them." Feroli is an ex-Fed official.

A Fed statement released Thursday also states, "Conditions in financial markets have improved in recent months." The officials state they will continue to "monitor closely" the need for their interventions and appropriate timing for backing out of other intervention measures.

The Fed noted that it will also reduce its program to provide needed cash to commercial lenders. You'll remember that we noted those commercial markets thawing out considerably and reported that in late Feb.

Some economists have worried that since the Fed policies were so accommodating during the recession, it will be difficult avoid inflation as the Fed attempts to unwind its program during the recovery. Thus far inflationary pressure has not materialized.

Ciaran O'Hagan of Societe Generale stated that the Fed's actions on Thursday would begin to slowly reduce the market's "fears that the Fed’s generosity is excessive."

Meanwhile as the stock markets continue to reflect on their huge run in recent months, it is to be expected that skeptics remain... and accordingly the trend continues to show stocks moving sideways.

Comments

[Dave Wrixon:]

So how much if anything is this going to cut its balance sheet?

Unless you can come up with a number, I think we can assume it is pretty meaningless.

Jun 26 07:22 AM

[Neil459:]

Without transparency we do not even know if its true, or who was given the money, or how the money was used. With the media on holiday it seems this money could have been just plain graft.

Jun 26 09:29 AM

[AndrewBaker:]

If financial markets are improving, why are the banks at the start of what will be a large price correction: downwards?

I've just read another "good news" report on Yahoo that says there is profit taking today. Anyone else think that there may also be

Jun 26 09:55 AM

[AndrewBaker:]

continued from above (sorry: computer glitch):

... also be selling because people have to pay bills and can't wait for their stocks to rise in price to what they paid for them last year or the year before? And with no job now, it's the only way to raise money to pay their bills?

Jun 26 09:57 AM

[Dave Wrixon:]

I think this probably explains it:

www.bloomberg.com/apps...

"China, the biggest foreign owner of U.S. Treasuries, cut its holdings of government notes and bonds by $4.4 billion to $763.5 billion in April, according to data released on June 15 in Washington. People’s Bank of China Governor Zhou Xiaochuan in March urged the IMF to expand the functions of its unit of account and move toward an international reserve currency to reduce dependence on the dollar. "

In other words they are skint.

Jun 26 10:27 AM

[Gregman2:]

Someone's been smokin' the wacky tobacky again.;-)

Jun 26 05:00 PM

[Boxed Merlot:]

Believe me, there's nothing more I'd like than to see than some good news. Unfortunately, from my perspective in the well, it all looks pretty dark. It's funny the government has chosen the word transparancy to describe the new reality. Though you can see right through it, it's as though it doesn't exist.

Jun 26 08:10 PM