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Fed Open Market Committee: Operation Twist is extended through the end of the year adding $267B...

  • Wednesday, June 20, 2012, 12:33 PM ET
    Fed Open Market Committee: Operation Twist is extended through the end of the year adding $267B to the total purchased. The Fed is prepared to take additional steps as necessary. Richmond Fed President Lacker dissents, opposing the extension of the Twist.
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This news story has 25 comments:

  •  
    SHOCKER................ LOL!!
    20 Jun 2012, 12:35 PM Reply Like
  •  
    Looks like my prediction on the Twist panned out...and the markets are selling off, for now.
    20 Jun 2012, 12:38 PM Reply Like
  •  
    A near-meaningless extension, as Twist has been money-supply neutral. In fact, M2 has declined slightly since QE ended last June, so this decision won't expand it at all.

    This, of course, is the correct decision (or doing even less, per Lacker) as the economy has done just fine since last June without a worthless infusion of more liquidity from the Fed. Monetary velocity will only be improved by higher rates, which will move money out of stagnant unproductive assets. Guess, we're still waiting for that reality to dawn down at Fed headquarters.

    P.S. Of course, we'll see the momentary no-QE hysteria in market indices, as the myth that QE has been driving everything dies hard.
    20 Jun 2012, 12:38 PM Reply Like
  •  
    I dont understand the push for more QE. The EU debt crisis has pushed yields lower than the Fed could have, but with all the uncertainty, there isn't a ton of borrowing. Deleveraging takes time, and without more action from the Fiscal side, there isn't much the Fed can do.
    20 Jun 2012, 12:43 PM Reply Like
  •  
    The push is that debt financing is at a very low point. If there are concerns about cumulative debt, this is a way to allow the U.S. lower debt financing. The downside for investors is that there is little to be gained from investing in Treasuries.
    20 Jun 2012, 02:05 PM Reply Like
  •  
    Some stats: the Fed has manufactured about 2T dollars out of thin air. M1/M3 are about $1.4T (last I checked) and about $7T. Of this $2T because the Fed is giving about 0.25% to banks if they don't lend out the money, and it counts under Basil II as 0% risk (i.e., it does not force banks to raise their capital ratio more) the upshot is banks get "free money" and no risk if they keep this money unlent. Of course nobody is really asking to borrow money but that's almost beside the point. Now consider this: what if the Fed stops paying 25 basis points interest to banks and they lend out this money? It will increase M3 by 28%. That might be inflationary?
    21 Jun 2012, 01:42 AM Reply Like
  •  
    Notice in the last Fed statement they mentioned "deflationary" pressures. The U.S. is turning Japanese.

    Interest paid on excess reserves is something I see as a problem, and my feeling is that cutting that out would spur lending. However, there are some prominent economists who talk it up too much, and as we get closer to Basel III it becomes less likely to change that policy. The velocity of money is slowing.
    21 Jun 2012, 02:40 PM Reply Like
  •  
    Herr:

    Cutting out the interest on reserves might have a marginal effect, but what they really should be promoting is higher rates at both ends of the curve, instead of flattening the curve, which is doubly negative to monetary velocity.

    Once the banking system was saved, the Fed and all the well-intentioned regulators have been foolishly looking backward at the just-occurred 100-year flood and planning for the next one, rather than concentrating on rebuilding. It's as if they are mandating that banks do nothing, by paying them for parking money and setting excessively high reserve reequirements. None of this spurs lending or economic growth.
    21 Jun 2012, 02:49 PM Reply Like
  •  
    That'll make all the difference. Away we go to 1,000 years of economic growth and streets covered in gold!
    20 Jun 2012, 12:40 PM Reply Like
  •  
    ^ha
    20 Jun 2012, 12:43 PM Reply Like
  •  
    Gold getting pummeled, destroyed....

    LMAO at the buggers and zerohedge!!!!HahahaHah...
    20 Jun 2012, 12:44 PM Reply Like
  •  
    LAMFO at the FED!!! After twelve years, they still can't tell the difference between credit sector private debt, and gov;t sector public debt!! Hahahahahaha...
    20 Jun 2012, 01:58 PM Reply Like
  •  
    Wow....gold got hammered a MASSIVE....let's see, let me get my magnifying glass out....oh....2/3 of ONE percent today. A rounding error in the scheme of things.
    20 Jun 2012, 04:35 PM Reply Like
  •  
    It's painful, we'll have to "suck up" the loss!

    Let's hope no faith is lost in a certain fiat curreuroency, as all it takes is one.
    20 Jun 2012, 05:07 PM Reply Like
  •  
    How will this effect the November elections?
    20 Jun 2012, 12:51 PM Reply Like
  •  
    Slow economic growth is bad for the incumbent. Nothing is going to get the economy growing fast enough to get Obama re-elected.
    20 Jun 2012, 12:55 PM Reply Like
  •  
    http://seekingalpha.co...

    as it pertains to mREITs!
    20 Jun 2012, 02:49 PM Reply Like
  •  
    So when you sell Short Term treasuries and buy Longer Term treasuries - who benefits? The supply of ST treasuries increases, prices go down, and (interest rates go up). The purchase of LT treasuries raises the price (who benefits?) and lowers the interest rates.

    Why does it feel like the front-running bond vigilantes benefit?
    20 Jun 2012, 04:38 PM Reply Like
  •  
    The U.S. Government benefits from lower borrowing costs in the long term.
    20 Jun 2012, 04:42 PM Reply Like
  •  
    Didn't / Won't the Fed recognize a capital loss on the ST Treasuries they sell? And won't they have to pay a premium over face value on the LT Treasuries they buy? Won't this reduce the Fed's income and consequently the US Treasury's income by an amount = the benefit of the lower LT interest rates?
    20 Jun 2012, 04:46 PM Reply Like
  •  
    So far the Fed has remained profitable. That may be the other part of the Twist, in that they balance the volumes and timing. They are absolutely in control of the Treasuries markets at the moment. However, if the need for safe haven investments declines, then I would expect there to be a bit of strain on the system. Some hedge funds might want to try front-running the Fed, but without a major change in the USD their prospects are not looking too good.
    20 Jun 2012, 05:10 PM Reply Like
  •  
    All I see is pushing on a string.
    20 Jun 2012, 05:15 PM Reply Like
  •  
    Bernanke told the "government" last August in Jackson Hole that it was time for fiscal stimulus.
    20 Jun 2012, 05:20 PM Reply Like
  •  
    I think I would like to be stimulated as much as this economy!!!
    20 Jun 2012, 06:45 PM Reply Like
  •  
    Its called "job justification"

    even if doing nothing is the better choice, no politician, and I wont argue about BB NOT being a politician as its alllll political, will do the right thing and do nothing

    Calvin Coolidge did and SUCCEED but the schools only teach of the scandals

    we ARE DOOMED

    ITS OVER
    YOU KNOW IT


    EVEN when the GOP is in power, THEY LOVE THEIR SUBSIDIES TOO

    Sure the Dem Leftists are more evil, but bad is bad

    and ONLY FISCAL CONSERVATISM SAVES US


    AND ITS NOT HAPPENING AND IT WONT HAPPEN

    it will take a student led conservative revolution which we are some time from


    G ----D YOU ANTI FREEDOM PRO COMMUNISTS

    TO H E LLLLL
    21 Jun 2012, 01:58 PM Reply Like
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