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Evan Schnidman
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Evan holds a Ph.D. from Harvard University as well as Bachelors and Masters Degrees from Washington University in St. Louis. He is the founder and CEO of Fed Playbook LLC. Evan’s financial research has been featured in Bloomberg News and his academic research has been published in journals and... More
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  • No Surprises From October FOMC Meeting 0 comments
    Oct 24, 2012 3:38 PM

    As expected, the October 23-24 FOMC meeting yielded a continuation of the current $40 billion/month asset purchase plan, continued low interest rates through mid-2015, and Twist through the remainder of 2012.

    The Committee did sharpen some language indicating they would let Twist expire at the end of the year. They also specified that until Twist expires, the combination of new asset purchases and "reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities" amounts to $85 billion/month in MBS purchases. This will presumably revert down to $40/month once they let Twist expire.

    The only new news coming out of the FOMC is the statement: "the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens." In other words, as long as inflation remains near or below the 2% target, QE3 will continue even as the economy improves and it appears we no longer need it. This is just another, stronger way of saying that quantitative easing is here to stay indefinitely.

    Beyond that line, some observers may note that the FOMC did not move toward zero interest rate policy that is driven by economic indicators (a mix of employment and inflation) and Charles Evans and Narayana Kocherlakota have both advocated. I suspect this will be taken up in December, but it may be put off until next year depending on the proclivities of the incoming voting Regional Bank Presidents for 2013 and Chairman Bernanke's stance on the policy.

    So, the big take-away from today's FOMC press release is that the QE3 is here to stay, even as the economy improves. This means that investors need not fear an improving economy pushing rates higher or limiting the flow of cash from the Fed; that is a long way off.

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