The only major news today came from the FOMC, which is the Federal Open Market Committee – or Benny & The Inkjets if you like.
A few portions of the released minutes follow…
…The decision by the FOMC at its November meeting to maintain the 0 to ¼ percent target range for the federal funds rate was widely anticipated. The decision to expand its holdings of longer-term securities by $600 billion by the end of the second quarter of 2011 was also roughly in line with market expectations, although market participants appeared to expect the purchase program would be increased over time. In the weeks following the November meeting, yields on nominal Treasury securities increased significantly, as investors reportedly revised down their estimates of the ultimate size of the FOMC’s new asset-purchase program. Incoming economic data that were viewed, on balance, as favorable to the outlook and news of a tentative agreement between the Administration and some members of the Congress regarding a package of fiscal measures also reportedly contributed to the backup in yields.
… Residential mortgage rates rose considerably over the intermeeting period, though not by as much as rates on longer-term Treasury securities. The spread between mortgage rates and MBS yields dropped back, reversing the widening of the spread that occurred over the preceding several months. Refinancing activity declined in response to the higher mortgage rates.
… Measures of underlying inflation continued to trend downward over the intermeeting period, with the slowdown in price increases evident across categories of goods and services and across different inflation measures. Although the prices of some commodities and imported goods had risen appreciably, several participants noted that businesses seemed to have little ability to pass these increases on to their customers, given the significant slack in the economy. Also, the high level of unemployment was limiting gains in wages and thereby contributing to the low level of inflation.
Those were only a few snippets of the whole report that can be found here http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20101214.pdf
So what Benny & The Inkjets are saying is that the economy is great, but not good enough to stop QE or POMO. Said another way, the economy is so rotten they can’t stop the money printing.
They are also (shockingly) admitting that although QE & POMO were supposed to lower interest rates, they have gone higher which will cause more housing problems; the EXACT issue that the FOMC wanted to “fix.” Even though it is not working, QE & POMO will continue.
The FOMC also denies that the SIGNIFICANT spike in commodity costs across the globe is directly and completely the cause of Benny & The Inkjets printing massive amounts of currency via QE & POMO. What’s more, they deny it is even happening and their mad experiments will continue.
Here’s the good news: the market is in a strong bull run, which means all of the POMO & QE are as good as gold. As long as equities are rigged to go higher, why would ANYTHING else matter?
A few portions of the released minutes follow…
…The decision by the FOMC at its November meeting to maintain the 0 to ¼ percent target range for the federal funds rate was widely anticipated. The decision to expand its holdings of longer-term securities by $600 billion by the end of the second quarter of 2011 was also roughly in line with market expectations, although market participants appeared to expect the purchase program would be increased over time. In the weeks following the November meeting, yields on nominal Treasury securities increased significantly, as investors reportedly revised down their estimates of the ultimate size of the FOMC’s new asset-purchase program. Incoming economic data that were viewed, on balance, as favorable to the outlook and news of a tentative agreement between the Administration and some members of the Congress regarding a package of fiscal measures also reportedly contributed to the backup in yields.
… Residential mortgage rates rose considerably over the intermeeting period, though not by as much as rates on longer-term Treasury securities. The spread between mortgage rates and MBS yields dropped back, reversing the widening of the spread that occurred over the preceding several months. Refinancing activity declined in response to the higher mortgage rates.
… Measures of underlying inflation continued to trend downward over the intermeeting period, with the slowdown in price increases evident across categories of goods and services and across different inflation measures. Although the prices of some commodities and imported goods had risen appreciably, several participants noted that businesses seemed to have little ability to pass these increases on to their customers, given the significant slack in the economy. Also, the high level of unemployment was limiting gains in wages and thereby contributing to the low level of inflation.
Those were only a few snippets of the whole report that can be found here http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20101214.pdf
So what Benny & The Inkjets are saying is that the economy is great, but not good enough to stop QE or POMO. Said another way, the economy is so rotten they can’t stop the money printing.
They are also (shockingly) admitting that although QE & POMO were supposed to lower interest rates, they have gone higher which will cause more housing problems; the EXACT issue that the FOMC wanted to “fix.” Even though it is not working, QE & POMO will continue.
The FOMC also denies that the SIGNIFICANT spike in commodity costs across the globe is directly and completely the cause of Benny & The Inkjets printing massive amounts of currency via QE & POMO. What’s more, they deny it is even happening and their mad experiments will continue.
Here’s the good news: the market is in a strong bull run, which means all of the POMO & QE are as good as gold. As long as equities are rigged to go higher, why would ANYTHING else matter?
Trade Date: 1/4/11
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