The Economic Rhythm Method

Wednesday, January 27, 2010 , , , 2 Comments

Alright, who is going to be whispering gossip about Bernanke at FOMC?

Good question. Even the usual suspects are coming out in support of the bastard. It's a natural survival tactic, I suppose.


The Federal Reserve may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March.

Fed Chairman Ben S. Bernanke and other policy makers meet after the sixth straight monthly gain in home prices in November added to signs housing is stabilizing. With financial markets rebounding, the central bank has said it plans to end emergency aid to bond dealers and money markets by Feb. 1.

The Fed will probably acknowledge growth accelerated last quarter while noting that tight credit and unemployment near a 26-year high still pose risks to the recovery. Officials are likely to maintain a pledge to keep interest rates low for “an extended period” as they look for evidence of a sustained expansion that will create jobs without raising inflation expectations, former Fed governor Lyle Gramley said.

“The Fed wants to sit still until the smoke clears,” said Gramley, a senior economic adviser to Potomac Research Group. “To change the ‘extended period’ language would send a signal to markets that a tightening is not far off, and I don’t think the Fed wants to do that,” Gramley said. He doesn’t expect a rate increase for at least six months.

The Federal Open Market Committee, gathering while Bernanke awaits a Senate vote on whether to confirm him for a second term, is scheduled to issue its statement at around 2:15 p.m.

Regional Fed presidents have differed over whether to continue buying mortgage-backed securities after March 31, with James Bullard of St. Louis saying the central bank should create such an option and Philadelphia’s Charles Plosser saying the purchases should end as scheduled.

Ready or not, I think they're pulling out.

[St Louis Fed President James] Bullard, who votes this year on policy, said in a speech in Shanghai this month the Fed should adjust asset purchases based on changes in the economy. Chicago Fed President Charles Evans told reporters Jan. 13 that the central bank would consider expanding purchases “if conditions were to deteriorate.”

In contrast, Kansas City Fed President Thomas Hoenig, who also votes on policy this year, said in a Jan. 11 interview that “the private market now is healing” and the program should end. Richmond Fed President Jeffrey Lacker said last month, “I think we have to move over time away from channeling resources to the housing market.”

Does this mean that the Treasury will have to come up with its own unlimited housing bailout?

Besides, sometimes pulling out calls for pushing back in harder (Barron's, November 2009):

Come the end of March, the Fed will stop purchasing MBS, notes Poggi, and the result of that is “mortgage rates would spike from recent all-time lows (30-year at 4.83%), further damaging the weak refinancing market,” writes Poggi.

The solution, writes Poggi, is for the Fed to use “reverse REPOs,” in which the Fed sells MBS to investors with the promise it will buy them back at a higher price down the road. That would assure a low-risk return, which would keep financing alive for MBS until credit returns to the market more broadly.


Reverse repos are one tool the Fed has at its disposal when the economy and financial markets have improved enough for it to drain cash from the system. The Fed uses short-term repurchase and reverse repurchase agreements to temporarily affect the size of the Federal Reserve System's portfolio and influence day-to-day trading in the federal-funds market.

The operation comes on the heels of a series of reverse repo tests that have been done by the bank over recent weeks.

"The idea is they want to get all their ducks in a row and be ready (to pull cash) when the time is necessary," Mr. Jersey said, adding that there's no point in doing large scale reverse repos as long as the Fed is still purchasing assets.

The Fed is in the process of buying nearly $1.75 trillion of Treasury, agency and agency mortgage-backed securities through its securities purchase programs.

Like I said, there's pulling out and then there's pulling out.

Single fap. *yawn*

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


OldSouth said...

JDA gets the fictitious BloggerOfTheDecade award for the funniest combination of title and picture.

Just too wickedly funny for words.

Anonymous said...

tit... you've met wringer and gotten acquainted.... now, we're going to have to reverse course.

now tit, brace yourself, this is going to smart a little