Bernanke: The Fed Will Sell Assets If It Has To

Friday, March 26, 2010 , , 3 Comments

Whatever it takes...

The time has finally come for the Fed to let go of the crap assets that it shouldn't have gotten a hold of in the first place. Alright, so Ben Bernanke didn't tell the House Financial Services Committee that the Fed was actually ready to unload anything, only that they'd totally be open to doing so if they had to.

Neil Irwin tells us via WaPo:

The Federal Reserve is open to selling some of the securities now on its books as part of its withdrawal from its unconventional efforts to prop up the economy, Chairman Ben S. Bernanke said Thursday, in a change of tone on how the Fed will execute its exit strategy from crisis-era interventions.

Bernanke, testifying Thursday before the House Financial Services Committee, said that "if necessary," the Fed "has the option of redeeming or selling securities" bought during the crisis. In written testimony to the same committee on Feb. 10, he was more ambiguous, stating that he did not "anticipate that the Federal Reserve will sell any of its security holdings in the near term," at least until after the Fed had begun raising interest rates and the economy had clearly begun a sustainable recovery.

Similarly, Bernanke said Thursday that "restoring the size and composition of the balance sheet to a more normal configuration is a longer-term objective of our policies." Six weeks earlier, he said only that the Fed "may also choose to sell securities in the future when the economic recovery is sufficiently advanced."

For comparative purposes, I remind dear reader that the Fed balance sheet is not that far away.

The AP has the dry video (blah blah blah inflationary pressures blah blah blah interest on reserves):

So, basically, Bernanke says they'll be paying interest of reserves and trying to work some reverse repo magic to shrink their balance sheet and every single one of those asshats in the House sat there and listened to it as if they had any clue what the guy was saying.

Meanwhile, Philadelphia Fed's Chuck Plosser is not at all cool with any of it (more WaPo):

Some members of the Fed's policymaking group, the Federal Open Market Committee, have been pushing to sell off the assets relatively quickly, both to prevent a burst of inflation down the road and to avoid a situation in which the Fed is essentially subsidizing one type of borrowing -- home mortgages -- but not others.

"We can always sell assets," Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in an interview last week. "I think we need to be open to that. In the long run, the Fed needs to get back to a balance sheet . . . that looks like all Treasurys, and is at a much smaller level. . . . Ultimately we have to shrink the balance sheet."

No shit, Chuck, thanks SO much for reiterating what we all already know for the bazillionth time, that's really useful of you.

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.


goldtracker said...

What a freaking tangled web they weave.

Anonymous said...

They're getting nervous:

There is a vocal minority on the Fed keen to start MBS sales soon, said Lou Crandall, chief economist at Wrightson ICAP. However, “most FOMC members think that is a boat they would rather not rock,” Crandall said.

Fed officials have made it clear in the minutes of their meetings this year that they want to get back to a Treasury-only portfolio.

“The sooner we get started on that path, the better off we’ll be,” said Philadelphia Fed Bank President Charles Plosser in a television interview this week.Jeffrey Lacker, the president of the Richmond Federal Reserve Bank, said in a speech that the time was right for MBS sales.

“It may make sense….to begin normalizing our balance sheet in advance of raising rates. Normalizing our balance sheet means reducing its size, but also returning to our traditional Treasury-only asset holdings,” Lacker said.

Better keep that giant inflatable big sale gorilla handy and in good working order, don't you think?

Anonymous said...

I think they've painted themselves into a corner on this one. The only buyers will bid uber low and to accept same, the Fed will have major egg on their faces. Ain't gonna happen. They'll feel they have no choice but to ride it out and hold them.

And now you find out you're gonna have to get used to it
You said you'd never compromise
With the mystery tramp, but now you realize
He's not selling any alibis
As you stare into the vacuum of his eyes
And say do you want to make a deal?