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Federal Reserve Members Question QE Beyond 2013

Stock-Markets / Quantitative Easing Jan 04, 2013 - 06:51 AM GMT

By: Eric_McWhinnie

Stock-Markets

The Federal Reserve launched its highly anticipated fourth round of quantitative easing in December. The latest money-printing program came only three months after the central bank’s unlimited QE3 was announced. Now, recent Federal Open Market Committee minutes show that policymakers are dividend about expanding the Fed’s balance sheet to unprecedented levels.

According to the just released FOMC minutes, several members want to ease off the monetary easing gas pedal by the end of this year, sooner than expected.


The Federal Reserve explains, “Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program’s efficacy and costs at upcoming FOMC meetings. In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.”

As expected, the central bank said last month it will purchase $45 billion in long-term Treasuries each month, in addition to its previously announced QE-to-infinity-and-beyond that buys $40 billion in mortgage-backed securities each month. The Federal Reserve also took the unprecedented step of pledging to keep interest rates at record lows until at least as long as the unemployment rate remains above 6.5 percent. The central bank implemented a zero interest rate policy in December 2008, and its own economic outlook does not project an unemployment rate under 6.5 percent until 2015.

The Federal Reserve is the biggest player in the bond market and will be “effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets” in 2013, according to JPMorgan Chase (NYSE:JPM), a member on the board of directors at the New York Fed. It seems extremely unlikely that the central bank would end its massive bond buying programs anytime soon, but the market still took a downturn on the FOMC minutes. As the chart below shows, the S&P 500 dropped from 1,465 to 1,459 on the news.

For more analysis on our support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.

By Eric_McWhinnie

http://wallstcheatsheet.com

Wall St. Cheat Sheet : Only days after the S&P 500 crashed to the depths of hell at 666, the Hoffman brothers launched Wall St. Cheat Sheet: one of the fastest growing financial media sites on the web. Like a samurai, our mission is to cut through the bull and bear shit with extraordinary insights, a fresh voice, and razor-sharp wit. We provide the highest quality education and information for active investors, financial professionals, and entrepreneurs.

© 2013 Copyright Eric McWhinnie - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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