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THURSDAY, MAY 22, 2014 - 19:08
SF Fed's Williams: Communication Issues Looms Large As QE Ends
By Catherine Hollande
"One challenge for the Fed will be unwinding its balance sheet and raising interest rates without disrupting markets or harming the economy. On Wednesday, Williams told the Wall Street Journal he would prefer to wait until the Fed raises interest rates, which have been near zero since December 2008, to take any steps to shrink the Fed's balance sheet.
One way to do that is to stop investing the proceeds of maturing bonds into new securities, a step the Fed has publicly said it expected to take prior to raising interest rates.
Williams reiterated Thursday his position on doing reinvestment after interest rates liftoff from zero. "In my own view, this issue that the public and the markets struggle with understanding - how we move these two different instruments separately from each other - has been really hard, and in a way, try(ing) to say we're going to move on the reinvestment first and then raise interest rates, I think that could be more confusing," he told reporters."
Long story short; confusion is never a good thing for the market
If it's confusing it sure hasn't seemed to hurt the market any - maybe because it's not really that confusing. To me it's pretty straightforward - the FED will first stop QE purchases, then later begin to slowly raise rates. Later - maybe MUCH MUCH later the FED will unwind it's balance sheet, but there's no real reason they have to do that anytime soon. It could be done very slowly years (or even decades) from now. There's no compelling reason for the FED to rush that process at all - that's something wingnuts just never seem to get, they keep saying that when the FED unwinds, chaos will ensue, but never provide a compelling REASON WHY the FED needs to unwind AT ALL (certainly not one that explains why the FED needs to do it anytime soon (or in a rapid manner once they DO begin to do it)).
Quantitative Easing IS ending and will be done by the end of the year - and the market will likely be fine, with any adverse impacts to the market being short-lived and fairly minor compared to the gains of the last five years.
The article you linked to really doesn't make much of a case for anything. Not sure even what your point was.
Ken
That's the same way I feel about a majority of your posts on the economy.
That's the same way I feel about a majority of your posts on the economy.
I am cautiously optimistic of the future after QE ends because right now it is as if your are playing on house money. When they have to raise interest rates making the sticks NOT the only game in town. Right now they are so I take them with a grain of salt. If it continues in a more natural market, I was wrong. I honestly do want to bee wrong this time.
"The outcome of this week’s gathering of Federal Reserve officials in Washington is expected to be a yawner -- and that’s a good thing.
The central bank will likely vote to do the same thing it did at its last meeting -- and the one before that, and the one before that: Reduce the amount of money it is pumping into the economy by another $10 billion.
The Fed’s purchases of long-term bonds, known as quantitative easing, are widely expected to end in the fourth quarter of this year. The steady phase-out has become so routine and predictable that QE has virtually vanished from the conversation on Wall Street and among Fed watchers..."
And indeed, that's what the FED did (about halfway done already - and the market no longer even flutters about it):
"On Wednesday, the FOMC announced a fourth $10 billion reduction to its quantitative easing program, reducing its monthly bond purchases to $45 billion and keeping pace with earlier guidance. The Fed will cut monthly mortgage bond purchases to $20 billion from $25 billion. Treasury purchases will drop to $25 billion a month from $30 billion...."
Chances are that when the final cut to the FEDs QE purchases happens, no one will even care. Stock investors always look FORWARD and react as early as they know something is going to happen - rather than WAITING for it to ACTUALLY OCCUR. The major impact to the end of QE happened LAST YEAR when the FED 1st announced it would end QE this year. At that point the market took a steep but very brief dive - and then in the following few weeks recovered it all and then some. Now that QE is actually winding down, no one really cares that much because the ending of QE was ALREADY factored in last year so the actual ending of QE is probably going to be a "non-event".
And as I said, even if the market took a 20% cut - so what, it's up over 100% from its lows so a 20% cut would STILL leave us with some pretty dramatic gains.
Ken
Last edited by LordBalfor; 05-24-2014 at 08:18 PM..
"The outcome of this week’s gathering of Federal Reserve officials in Washington is expected to be a yawner -- and that’s a good thing.
The central bank will likely vote to do the same thing it did at its last meeting -- and the one before that, and the one before that: Reduce the amount of money it is pumping into the economy by another $10 billion.
The Fed’s purchases of long-term bonds, known as quantitative easing, are widely expected to end in the fourth quarter of this year. The steady phase-out has become so routine and predictable that QE has virtually vanished from the conversation on Wall Street and among Fed watchers..."
And indeed, that's what the FED did (about halfway done already - and the market no longer even flutters about it):
"On Wednesday, the FOMC announced a fourth $10 billion reduction to its quantitative easing program, reducing its monthly bond purchases to $45 billion and keeping pace with earlier guidance. The Fed will cut monthly mortgage bond purchases to $20 billion from $25 billion. Treasury purchases will drop to $25 billion a month from $30 billion...."
Chances are that when the final cut to the FEDs QE purchases happens, no one will even care. Stock investors always look FORWARD and react as early as they know something is going to happen - rather than WAITING for it to ACTUALLY OCCUR. The major impact to the end of QE happened LAST YEAR when the FED 1st announced it would end QE this year. At that point the market took a steep but very brief dive - and then in the following few weeks recovered it all and then some. Now that QE is actually winding down, no one really cares that much because the ending of QE was ALREADY factored in last year so the actual ending of QE is probably going to be a "non-event".
And as I said, even if the market took a 20% cut - so what, it's up over 100% from its lows so a 20% cut would STILL leave us with some pretty dramatic gains.
Ken
Which highlights what I believed after I exited the pessimistic world of Ron Paulism; the selling that went on whent he Fed announced it would end QE was nothing more than panic selling. It wasn't the market's floor collapsing underneath our feet, it wasn't the start of doom and gloom, and it wasn't the start os some new gold rush. Paul, Schiff, and the other Austrians were dead wrong on this one. They may have gotten the 2008 collapse right, but they've been pretty wrong since then. Gold prices are still slowly deflating overall, the U6 unemployment rate is down 2% from last year. In my area alone, which got moderately high unemployment in 2008-2009, I see more and more Now Hiring signs everywhere; this despite the cries from the Right how the ACA is going to cause skyrocketing unemployment rates They were wrong before, they are wrong again, and will most likely be wrong up till the midterms. If this keeps up, Fox News is going to have to pull out all the Benghazi stops and hope it works, because it's not looking good for Republicans once the fog of war starts to lift
If interest rates go double digit (see 1980's), the market may see an issue. If it continues to stay in current ranges you will see normal average growth in Stocks.
For years now, the wingnuts have been telling us how it was just the administrations' QE propping up the stock market - that the recovery of the stock market was just an illusion, that US companies were not doing well enough to justify the higher stock prices, and that once QE ended stocks would crash back to where they were 5 years ago because "the economy was not recovering".
Well, the Fed announced today that they were starting scale back QE in January - and, the stock market shot up - ending the day in record territory with the DOW up nearly 300 points, the S&P up nearly 30 points and the NASDAQ up nearly 50 points.
Oppps!
Gold, on the other hand got clobbered - as I said it would.
Hmmmm.... could it be that all the nonsense about the stock market simply being propped up by QE was just that - nonsense?
Yup.
Ken
Your logic is very flawed. QE not being needed today doesn't mean it wasn't shoring up the market in the past. Perhaps the fed decision to scale back QE is because it's not needed anymore but that does not mean it wasn't in the past. Also, what happens in one day is hardly telling of the future. Your logic is very flawed here. Perhaps people think that the fed decision to scale back QE means the economy is healthier than it is.
Last edited by Ivorytickler; 05-25-2014 at 04:58 AM..
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They were wrong before, they are wrong again, and will most likely be wrong up till the midterms. If this keeps up, Fox News is going to have to pull out all the Benghazi stops and hope it works, because it's not looking good for Republicans once the fog of war starts to lift
