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QE3 - The Fed, FOMC, Congress, and Election Year equals... ?
For immediate release
Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.
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As I mentioned in either this thread or another one, those who benefit most from QE are the Primary Dealer Banks. I'm not sure what you're referring to with the "elite" but maybe that was it. If you're referring to the ultra high net-worth people of this country, you're wrong. A mass amount of ultra wealthy individuals are affected by this too (I know that may sound strange but it is true). Many are heavily invested in fixed income securities including municipal bonds and other high(er) credit quality investments. Once you've attained wealth, its more about retaining it vs. taking high risk and being overweighted in equities and other higher risk assets. The Fed's policies have been crushing the fixed income market in terms of yield. Sure the value of the bonds have risen but selling at a premium results in capital gains which is a major issue for someone with a few hundred million dollar fixed income portfolio. Then there's the issue of reinvestment risk. Yields are garbage right now so there's no need to sell out of good paper. Anyway, I always have to crack up when I see people say the elite benefit from this. Unless of course you're solely referring to those on Wall Street that are tied up in company stock and options and their bonuses are reliant upon the company's overall performance. I came from that world and I know all too well how that works...
Aside from that, it is my opinion that the decision to buy MBS was politically influenced in that they are avoiding the issue of deficit spending by buying MBS in lieu of US Treasuries. Another crafty move by the Bernank.
Of course printing money always benefits the elite asset owners more than the non-asset owners, whatever those assets are. Bonds or stocks. If you are heavily invested in fixed income securities and the Fed comes along with a plan to buy up debt paper on the incredible scale of these QE programs, then who is benefiting most by the rise in value of those securities? Are you saying because they have to pay tax on their gains that they are better off than the person who does not get his assets inflated and has no gain to pay tax on? Reinvestment risk? If the bank is saying they will do and print anything to inflate the value of assets how is that a negative for the asset holders?
And yes, the Wall Street elites make their money with all this free liquidity. Unbelievable sums, and their hedge fund cronies and clients all get a piece of the pie. It's a great game if you are elite, this endless monetary stimulus. And it sucks for the man on the street. I don't see where you get cracked up on this? I also spent some time in that world. I worked in ear shot from the CFO of Merrill Lynch Investment Banking in Hong Kong. Also worked as interdealer broker, cantor fitzgerald. My client was my frat brother from university days, at the time he was head of equity derivatives sales and trading at Deutch Bank, MD, ... I also know about the game..
And I can tell you the whole thing is a ponzi scheme. My job at ML was to prepare risk reports for a group of equity derivative traders. Pretty easy. Each morning I would put all their positions into my spreadsheets, print out the greeks, and send it to the CFO. If a trader wanted to take a trade outside his risk limits, he would call our desk for approval. Sometimes we would give permission, sometimes we escalated to the risk managers and CFO. Most of the time there wasn't much to do. We sat with the CA's who did the PL each week and month so I had access to view quite a lot of the accounting shenangans. ML at the time at somewhere between 50,000 and 100,000 accounting entities... This derviative trader in this contry offsets this derivatives trade with this guy in this book and all this kind of shit. No one can comprehend that shit, and that's why they went bust. But as long as we keep giving them free month, we can keep playing the game...
