Monetary Policy

Fed Says QE Infinity To Keep on Going, For Now

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credit: Medill DC / Foter.com / CC BY

No real surprises from the most recent meeting of the Federal Open Market Committee. Despite some talk in the press of possible "tapering," the Federal Reserve's governing board said today that it will continue with its existing, open-ended bond-buying program, at least for the moment.

From the press release:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Fed announced its open-ended bond-purchasing program—the third such round of quantitative easing (QE) it has undertaken since the start of the recession—back in September. The basic idea was that rather than pursue bond-buying programs designed to last for a set period of time, the Fed would continue to offer what it describes as "accomodative" monetary policy for as long as the Fed's governors thought it was necessary to help the support the economy. What today's decision to keep that program going tells us is that the Fed still thinks the economy is in weak enough shape that continued monetary support is necessary.

The Fed's statement, however, also suggests that it believes that such support might not be necessary for much longer. "Labor market conditions have shown further improvement in recent months, on balance," the statement says. The Fed's governing board also believes "downside risks to the outlook for the economy and the labor market as having diminished since the fall." In other words, the FOMC thinks the risks of a major economic decline are smaller than they used to be. So although the Fed still believes the economy needs help, it might not need it (or need as much) for much longer. Maybe the taper's coming soon after all?

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  1. To support a stronger economic recovery

    Unless what follows that is “the Fed will stop manipulating interest rates,” it will not work.

  2. Not to belabor this point any more than I already have, but I was the first to advocate infinite borrowing.

    Also, shouldn’t it be accommodative?

    1. Well, that solves the inflation problem.

    1. and a followup

      1. Fucking awesome! You really should put some kind of description as I don’t normally watch youtube videos.

  3. At what point will the economy be deemed “recovered”? When we’ve hit ten percent annual inflation?

    1. Well, as long as that ten percent remains at ten percent so we have the mandated “price stability”.

      Say, where *is* barfman?

      1. Haha, the myth of “controlled inflation.”

        Seriously, though I am tired of this administration telling us (and perhaps even believing) that the economy will get better soon, if it means they will stop diluting our currency, I’m all for it.

        That is of course, assuming that for them inflation is done to improve our economy, and not for other purposes.

    2. “At what point will the economy be deemed ‘recovered’?”

      Once the aliens invade?

      /Krugman

    3. At what point will the economy be deemed “recovered”?

      When we are rid of that pesky “middle” class.

  4. … suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that ….

    I started to do a snarky paraphrase, but this is such apparent BS it speaks for itself.

    There just *has* to be some substance behind this QE bond-buying stuff, right? These are Top. Men. doing what’s best for the country, right?

  5. Someone needs to defrost shrike and load “Lies_File_6” into him.

    1. “Ladies and gentlemen, my killbot has Lotus Notes and a machine gun. It is the finest available.”

    2. Someone needs to defrost shrike and load “Lies_File_6” into him.

      You have written some truly vile things on these pages over the years. Mostly, I appreciate it. THIS, however, is so hideous as to be beneath even you, which I previously thought unpossible.

      There is no reason, EVER to summon that shit-stain.

  6. It’s been working great so far. More of the same!

  7. But the “recovery” isn’t a bubble. Oh no. Couldn’t be.

  8. No one believes the Fed is going to keep rates down much longer. The long bond is getting slaughtered today, the 10 year yield is on it’s way over 3%.

    The days of sub 4% 30 year fixed rate mortgages are now gone for good as well.

    1. The days of sub 4% 30 year fixed rate mortgages are now gone for good as well.

      While I don’t claim to know, I assumed that we were headed into more of a Japanese style “lost decade, perhaps century etc” and that interest rates would remain very low for the foreseeable future. Why or how is our situation different?

      It seems to me that a greater supply of money would decrease the cost of borrowing, not increase it.

      1. It seems to me that a greater supply of money would decrease the cost of borrowing, not increase it.

        Depends. I ran across a car commercial on YouTube that touted a 4.8% EPR for 48 months as if this was somehow a good thing.

        So $15,000 in 1990 for 4.8% for 4 years results in $16,515 total costs. A six year loan at 0.9% for the same amount results in $15,414. So theoretically, all this cheap credit does lower the cost of borrowing.

        However, that $15K in 1990 is about $26,000 in today’s money. So what the issuance of all those years of cheap credit have done is raise the actual cost of the car, which technically speaking has raised the cost of borrowing before the loan is even issued.

      2. Why loan money and incur the interest rate risk? It is what did in the S&L’s; though many like to claim Volcker as some sort of genius.

    2. The days of sub 4% 30 year fixed rate mortgages are now gone for good as well.

      Buh bye housing recovery…hope you sold when you were a little closer to the surface.

  9. Why doesn’t Bernanke just tell everyone to draw an extra zero on their currency denominations and make sellers accept them? Hell of a lot more efficient than printing new money or creating bonds and
    running them through the banks’ back offices.

    1. It’s like playing Monopoly with Careers money!

    2. Why doesn’t Bernanke just tell everyone to draw an extra zero on their currency denominations and make sellers accept them?

      Because that still wouldn’t be enough?

  10. How many QE’s do we need to do to get alt-text?

    1. Alt-text: “Who’s got two thumbs and likes fucking the economy?”

  11. Is it just me or has the Fed dug itself into a hell of a hole here? If it lets rate rise or cuts QE the cost of borrowing goes up and we probably get another recession with lots of new unemployment. If it does nothing, the inflation time bomb gets even bigger. It’s a lose-lose situation and 20 years from now Bernanke is going to be very poorly remembered.

    1. It’s not just you. It’s like a cokehead taking more coke to avoid coming down.

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