Fed Wonks Aren't So Sure About this Asset Purchase Thing
WSJ's Real Time Economics has a pretty awesome take on yesterday's FOMC minutes and I mean awesome. And I say that as a "Fed wonk" myself, if that's what you want to call me.
Personally I like "Fedbashing central bank fangirl" but that's just me.
Of the three points RTE makes on what people aren't talking about when it comes to this latest Fed announcement, it's the first point I'm most interested in:
1) As Stephen Stanley, from RBS, points out in a research note, some of the mortgage backed securities and Treasurys that the Fed has purchased in the past year have begun to mature or get prepaid. For now, the markets group at the New York Fed has marching orders to let these securities mature without reinvesting the cash proceeds it gets in return. That’s interesting. Some Fed officials are arguing that the Fed should consider buying more mortgage backed securities. However, the default position for now at least is to let the program run off. As the minutes note, Fed officials will be revisiting that issue in the months ahead, as they come up with a broader strategy for this mortgage backed securities program. This shows that Fed officials have a very complex set of choices to make in the months ahead about their mortgage portfolio. It’s not just about whether to keep buying. They also need to come up with a plan for handling the securities they’ve already got and there are many debates to come about how to do that.
It is only slightly naive to assume the Fed even has a strategy when it comes to its asset purchases. I get the sense oftentimes that they miss the details; so busy focusing on the broader "whatever it takes" of their new role as Lender of Only Resort, it is unfortunate that they appear to be getting deeper and deeper in the hole with each meeting. Is there a remedial exit strategy sketched out on some whiteboard in the Board's basement? Maybe scratched on a couple of Post-it notes stuck to Bernanke's desk?
No. And if there were, there is far too much "divergence" among Fed officials to come to any conclusions, let alone The (capital T) Conclusion that gets them - and more importantly the dollars - out of this.
So? Boys? What are we going to do?
It goes without saying that it's typical blind bumbling Fed behavior to be talking about "more more more" on MBSs without figuring out to do with what they already have but I imagine the pressure from outside sources (yes, I'm talking about you, Tim Geithner) to keep funding this massive beast of a deficit is too loud to ignore.
I can't speak for the other Fed wonks but, uh, this is starting to look worse than I originally thought. And I think you guys already know how I felt before...