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Global investors appear convinced more QE is in the pipe.
"It is almost as if investors are saying QE will happen no matter what," said Bank of America Merrill Lynch's Gary Baker.
BoA Merrill's latest monthly survey of 260 fund managers showed nearly three in four expect the ECB to proceed with another liquidity operation by October. Almost half expected the Fed to return to the pumps over the same period.
The BoJ has already upped asset purchases yet again this year and Bank of England policy dove Adam Posen said on Monday the BoE should not only buy more government bonds but target small business loans too.
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NYtimes article that thinks the FED isn't printed nearly enough USD yet:
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As I predicted, as far back as June of 2010, the Fed will soon follow the strategy of ceasing to pay interest on excess reserves. Since October 2008, the Fed has been paying interest (25 bps) on commercial bank deposits held with the central bank. But because of Bernanke's fears of deflation, he will eventually opt to do whatever it takes to get the money supply to increase.
With rates already at zero percent and the Fed's balance sheet already at an unprecedented and intractable level, the next logical step in Bernanke’s mind is to remove the impetus on the part of banks to keep their excess reserves laying fallow at the Fed. Heck, he may even charge interest on these deposits in order to guarantee that banks will find a way to get that money out the door.
The move would be much more politically tenable than to increase the Fed’s balance sheet yet further, most likely because people don’t understand the inflationary impact it would have. Ceasing to pay interest on excess reserves would allow the Fed to lower the value of the dollar and vastly increase the amount of loan creation, without the Fed having to create one new dollar.
If commercial banks stop getting paid to keep on their dormant money at the Fed, they will surely find somebody to make a loan to. They may even start shoving loans out through the drive-up window with a lollipop. Banks need to make money on their deposits (liabilities).
If banks no longer get paid by the Fed, they will be forced to take a chance on loans to consumers, at the exact time when they should be getting rid of their existing debt. But it has already been made very clear to them that the government stands ready to bail out banks. So in reality, they don’t have to worry very much at all about once again making loans to people that can’t pay them back.
Commercial banks currently hold $1.42 trillion worth of excess reserves with the central bank. If that money were to be suddenly released, it could, through the fractional reserve system, have the potential to increase the money supply north of $15 trillion! As silly as that sounds, I still hear prominent economists like Jeremy Siegel calling for just such action. ...
http://kingworldnews.com/kingworldn...Move_Is_About_To_Cause_Gold_To_Skyrocket.html
Would they really unleash the Kraken?
Release the Kraken! - YouTube
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Back to the good news, QE3 will fail, and it will because money creation for the sake of money creation, and bond buying meant to prop up Washington and mortgages, is by definition an economic retardant for it signaling an economy moving backwards into the horrid concepts of the past. QE3's failure will happily mean the end of Ben Bernanke's very unfortunate reign at the Fed; the only question at this point one of whether President Obama will remove him in order to save his faltering presidency, or whether a President Romney will remove him in order to have a shot at a successful one.
The Federal Reserve could expand its stimulus package to include assets other than mortgage-backed securities if the U.S. economy fails to respond to its latest effort to jump-start the economy.
“Unlike our past asset-purchase programs, this one doesn’t have a preset expiration date,” said San Francisco Fed President John Williams at a speech at the City Club on Monday. “Instead, it is explicitly linked to what happens with the economy.”
At its monetary-policy meeting on Sept. 13, the U.S. central bank said it would buy $40 billion worth of mortgage-backed securities per month as part of a stimulus plan colloquially known as QE3 — for Round 3 of quantitative easing.
“We might even expand our purchases to include other assets,” he said.
While the Fed is limited to what it can hold on its books, it can increase purchases of U.S. Treasurys, mortgage-backed securities, and debt issued by agencies such as Freddie Mac and Fannie Mac, Williams said.
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From Benjamen's link:
So they are threatening to buy government debt directly now?
Ok, so the FED acted. The 40bn monthly MBS purchases isn't a huge amount, but it seems they might enhance the volume after the election.
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After historic changes last month, Federal Reserve officials this week will discuss a possible expansion of the size of its third round of bond buying and better ways to guide markets about future policy actions.
At its two-day meeting that starts Tuesday, the Fed may abandon its calendar date.approach to forward guidance and adopt some form of numerical target for policy, analysts said.
Reuters Federal Reserve Chairman Ben Bernanke (left) speaks with Charles Evans of the Reserve Bank of Chicago in August. The approach of Evans is slowly being adopted by his Fed colleagues.
And the central bank consider whether to expand its bond-buying at the end of the year to take account of Treasury purchases under its Operation Twist plan that finishes at year-end.
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At the moment, the Fed is buying $45 billion of long-term Treasurys each month under its Operation Twist program, with the purchases offset by sales of shorter-term securities.
Many economists think the Fed will decide to expand QE3 by that amount, and with Treasurys instead of MBS. But the announcement is not expected to come until its December meeting.
Several Fed officials have spoken in favor of expanding QE3. Read: Fed’s next move: Buy more Treasurys
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Surprise, surprise...
If they put anything about an extension into today's fomc statement it's rally time for pms.
Me neither. It's probably going to be announced in December.I'd be shocked to see something along those lines happen today. My account would appreciate it greatly, but I am not counting on it.
As you all know by now, the Federal Reserve boldly announced plans "to boldly go where no man has gone before" and purchase each and every month, the tidy sum of $40 BILLION in US Mortgage Backed Securities (MBS ) to "aid the recovery". This was supposed to begin in September of this year and continue on out as far as the eye can see, into infinity, as my friend Jim Sinclair has stated, or until economic conditions warrant a cessation of the program.
Here is the problem however. I have been closely monitoring the balance sheet of the Fed each and every week and I simply do not see it! Take a look at the following chart I have constructed of the overall balance sheet but detailing also the sum of mortgage backed securities contained therein.
Can you see how both lines have basically flatlined since the cessation of QE2 last year? Does anyone out there see a climbing MBS line on this chart especially to the tune of $40 billion higher each month? I sure don't!
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After questioning last week where the Fed's QE3 had gone, it seems as if we got an answer this week. This afternoon's report on the Fed Balance Sheet shows a sharp increase in Mortgage-Backed Securities holdings on their Balance Sheet, $37 Billion to be exact.
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http://online.wsj.com/article/SB10001424127887323751104578147443715538694.htmlFed Stimulus Likely in 2013
Bond Buying Is Expected to Continue in Effort to Spur Slow-Growing Economy
By JON HILSENRATH
Three months after launching an aggressive push to restart the lumbering U.S. economy, Federal Reserve officials are nearing a decision to continue those efforts into 2013 as the U.S. faces threats from the fiscal cliff at home and fragile economies elsewhere in the world.
The U.S. economy has been growing at a skimpy rate of around 2% for much of the year. While Fed officials have been encouraged by progress in the housing and banking recoveries, business uncertainty and hiring restraint are still holding back growth. And if President Barack Obama and lawmakers fail to reach an agreement before year-end, the fiscal cliff's roughly $500 billion in tax increases and spending cuts could kick in next year and throw the economy back into recession.
For now, investors have shown optimism over the fiscal negotiations, with stocks rising early Wednesday and continuing higher after The Wall Street Journal reported the Fed's likely intentions. The Dow closed up 106.98 points, or 0.8%, to 12985.11. Asian markets edged higher on Thursday morning, with Japan up 0.6% and South Korea up 0.9%.
Central bank officials face critical decisions at their next policy meeting Dec. 11-12. The most pressing is whether to move forward with bond-buying programs in which the Fed is accumulating immense stockpiles of long-term mortgage-backed securities and Treasury bonds. The bond-purchase programs are meant to drive down borrowing costs, and in turn boost the prices of assets like stocks and homes, and stimulate hiring, spending and investment.
The Fed signaled strongly in September that it was inclined to sustain these programs and markets have anticipated some combination of bond purchases will continue next year. Several Fed policy makers have suggested in recent interviews and public speeches that they support more bond buying. At their meeting next month, officials will debate extending the programs and hear staff presentations on their impact.
The Fed has been experimenting withdifferent bond-buying programs since late 2008. In all, it has accumulated $900 billion in mortgage securities and more than $1 trillion in long-term Treasury securities since then. Critics of these policies inside the Fed and out worry that the programs could cause inflation or asset bubbles.
Moreover, Fed officials acknowledge that the programs aren't as powerful as they were during the financial crisis. But they believe they are still helping the economy, especially housing, and the risks are manageable.
Fed Chairman Ben Bernanke said at his news conference in September that the central bank would review all its asset purchases at the end of the year, when one of the bond-buying programs expires.
Fed officials said in their statement after the September meeting that they would keep buying long-term bonds until the job market improves substantially. The unemployment rate has fallen since July, but not enough for many policy makers.
"I am not prepared to say we are remotely close to substantial improvement on the employment front," Atlanta Fed President Dennis Lockhart said in a speech this month. Mr. Bernanke echoed that view last week in an address to the New York Economic Club, in which he said unemployment is still "well above" where it would be in normal times.
Underscoring the Fed's dim view of the job market, the central bank said Wednesday in its premeeting beige book that its 12 regional banks reported "modest improvements in hiring activity" in recent weeks. There were some pockets of weakness in places such as Richmond, Va., and Cleveland, and some large employers moved toward part-time workers or postponed hiring until next year.
Since September the Fed has been buying $40 billion a month of mortgage-backed securities and looks set to continue that program. Officials believe the program has helped push down mortgage costs and spur a housing sector that is on the mend.
The more urgent issue is what to do with a $45 billion-a-month program known as Operation Twist, in which the central bank is buying long-term Treasury securities and funding the purchases with sales of short-term Treasurys. That program ends in December and many officials want to keep buying long-term Treasurys next year as a complement to the mortgage purchases.
"A decision not to continue buying long-term Treasurys when Twist expires would be a surprise to markets and that would be counterproductive," John Williams, president of the San Francisco Fed, said in an interview last week. "It would push long-term rates up and cause financial conditions to be a little less supportive of growth."
The Fed has run down its stockpile of the short-term Treasurys to sell to fund long-term purchases. To keep buying the long-term bonds it would need to fund the purchases by creating new bank reserves, which in effect is printing money. That is how the Fed has funded previous Treasury purchase programs and how it is funding the mortgage-bond buying. Though critics say this could be especially inflationary, many Fed officials believe they can manage the reserves without risking inflation.
It is possible that Fed officials might deviate in size from the $45 billion in monthly Treasury purchases—and $85 billion in all when mortgage securities are counted—but a big change from that amount looks unlikely. "The composition of the purchases, roughly 50-50 between (mortgages) and long-term Treasurys, is a good one," Mr. Williams said.
The central bank faces considerable uncertainty about the economic outlook. If the economy tumbles over the fiscal cliff and into recession, Mr. Bernanke has said there is little the Fed could do to offset such a shock.
Reading economic data in the weeks ahead could be doubly hard, because of distortions caused by Sandy, the superstorm that hit the mid-Atlantic in late October. Surging unemployment claims in recent weeks suggest the storm's effects could skew near-term measures of employment, growth and spending. Such variables could give the Fed added incentive to adopt a steady-as-she-goes approach on bond buying.
Central-bank officials want to see faster economic growth to sustain more improvement in the job market. Macroeconomic Advisers LLC, a forecasting firm, estimates the economy grew at a 2.9% pace in the third quarter, but has slowed to a pace of 1.4% in the fourth. The U.S. needs "a faster pace of growth than we have now," Charles Evans, president of the Chicago Fed, said in a speech this week.
Another issue for officials to consider at the December meeting is whether to alter their communications strategy. For several months, they have been debating whether to state explicitly what unemployment rates or inflation rates would get them to raise short-term interest rates from their very low levels. Such a move, they believe, could help reduce uncertainty about how long interest rates will remain low, thereby keeping long-term rates low.
Officials are making progress on this front. Vice Chairwoman Janet Yellen recently said she supported such a move. Mr. Evans this week altered his proposal on the matter to edge closer to others' visions for such thresholds. Mr. Evans said the Fed should assure the public it will keep short-term interest rates near zero as long as the unemployment rate is above 6.5% and inflation is projected to remain below 2.5%.
If the Fed is going to adopt such a move, it would make sense to do it either at the December meeting or in March, when Mr. Bernanke will hold news conferences and be able to explain the central bank's thinking on the complicated subject. But there could be lingering disagreements on what numbers to adopt and how to articulate the plan.
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A version of this article appeared November 29, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Fed Stimulus Likely in 2013.
Late this afternoon, a story appeared on the Dow Jones newswire service relating a speech given by Federal Reserve governor Jeremy Stein. In his prepared remarks he defends QE3 and seems to be strongly arguing for an additional new round of QE4.
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There is however a nice, dirty little secret that Mr. Stein, more than likely inadvertently, let out of the bag. Here is the takeaway quotation....
Research shows "Treasury buying is associated with increases in stock prices, which in turn can have wealth effects on consumption and investment".
There ya have conclusive proof that a major strategy of the Central Bank is to produce enough funny money to jam the stock market higher and by so doing, make consumers feel wealthier as they examine their 401K's and retirement portfolios as well as inducing businesses to expand based on a rising price for their stock.
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At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.
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The Fed currently holds about 18% of the U.S. GDP on its books and it could bulge to 23-28% a few years out depending upon the continuation or increase in current programs.
And miners aren't down at all. That's a pretty strong indicator for fireworks to the upside tomorrow.
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