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FOMC sounds more upbeat on the economy

  • As expected the Fed has added another $10B to the taper, bringing asset purchases down to $45B per month. Of that, $25B will be Treasurys, $20B MBS.
  • "Economic activity has picked up recently, after having slowed sharply during the winter," leads the FOMC statement. "Household spending appears to be rising more quickly."
  • Today's decision is unanimous, with Minneapolis Fed boss Kocherlakota dropping his dovish dissent from the last meeting.
  • Full statement
Comments (9)
  • idkmybffjill
    , contributor
    Comments (1718) | Send Message
     
    Where are all the naysayers on this site who were confident the Fed would *NEVER* taper?

     

    All I hear are crickets now.
    30 Apr 2014, 03:55 PM Reply Like
  • mobyss
    , contributor
    Comments (2189) | Send Message
     
    After the taper there will still be #1 - unwinding the $4T+ balance sheet, and #2 - getting interest rates back up to a "normal" level - say the 10-year at 5.5% or so.

     

    These two steps may take a lot longer than anyone anticipates, if they happen at all. I sincerely doubt that we'll see a Fed balance sheet less that two or three trillion again - the step change of 2009 is probably permanent now. And Yellen has already made clear that ZIRP will go on for at least a couple more years, in which case we'll have been at the zero bound for almost ten years(!). An economy that gets used to rates that low is going to have a very hard time with anything higher.

     

    As far as the current taper - it could be that PART of the reason they are plowing ahead with the $10B per month reduction is to "reload" for the next time QE is needed, which might not be that far away. Keep in mind that the last recession ended almost five years ago, and we're probably much closer to the beginning of the next one than the end of the last. If the next recession requires QE (and it will, since QE will be the "go to" tool for all future Fed actions), they may need $200B a month or more. The impact of that will be more powerful starting from $0 than $85B.
    30 Apr 2014, 05:18 PM Reply Like
  • noob
    , contributor
    Comments (393) | Send Message
     
    I don't think there is anything more to add on the subject.
    You covered it succinctly and accurately.
    30 Apr 2014, 05:46 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1718) | Send Message
     
    mobyss, I'm pretty sure the Fed will actually lose control of the dollar if they attempt another QE the size of the 2008-present one.

     

    As for unwinding the balance sheet, what is the average maturity date for the Fed's holdings? They could just hold the assets till maturity and let them run off.
    30 Apr 2014, 05:54 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4298) | Send Message
     
    hey id wait til the next recession then what? Oh i know we do not have them anymore.
    1 May 2014, 05:57 AM Reply Like
  • Economic Analyst
    , contributor
    Comments (2865) | Send Message
     
    Very soothing.

     

    http://bit.ly/R12fTJ
    30 Apr 2014, 04:43 PM Reply Like
  • minecanary
    , contributor
    Comments (641) | Send Message
     
    The Fed is tapering because the deficits are declining due to the massive capital gains they've bestowed on the rich. It certainly isn't because QE has invigorated the economy. Going forward, it looks like macro events will replace even the Feds intervention as the most important factor. Any one of a list of problems might bring down the entire financial house of cards - and QE won't fix it. This is probably the Fed's last hurrah.
    30 Apr 2014, 11:37 PM Reply Like
  • EK1949
    , contributor
    Comments (1670) | Send Message
     
    "The Fed is tapering because the deficits are declining due to the massive capital gains they've bestowed on the rich."

     

    The rich want low rates? Somebody ought to let them know, because a huge anti-Fed propaganda campaign has come from financial and conservative policy and media circles promoting higher rates now now NOW, which makes sense since that's what they always want. But you say they want low rates and really love what the Fed is doing because low rates make them rich! If that's true why don't they call off the dogs?

     

    Low rates favor debtors, the rich are creditors, low rates is how you recover from a credit bust, the rich hate it because they want to squeeze harder, that's the way it's always been, no need to reinvent the wheel on this one.

     

    Smaller deficits do favor the rich, by hurting them less than everyone else. Government spending skews downwards distributionally. Everyone who supports deficit reduction knows this, everyone who opposes deficit reduction knows this, because everyone knows this. My dog knows this....OK not my dog, I don't have a dog, but if I did.....:-)
    1 May 2014, 03:25 AM Reply Like
  • minecanary
    , contributor
    Comments (641) | Send Message
     
    I didn't say it from the side of the rich. The Fed can't keep monatizing a trill a year when the deficit is 600 bill because there isn't enough T-bills for collateral. They already own a significant portion of the outstanding stock and the level would rise dramaticlly if they didn't taper. The banking system needs t-bill float to lubricate the overall process.
    1 May 2014, 10:30 AM Reply Like
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