The FOMC just did a great thing. The Federal Reserve tied interest rates and quantitative easing to U.S. labor. The messaging alone is powerful. The Federal Reserve is saying, very clearly, U.S. workers matter. Businesses need to start hiring and increasing wages if they want to actually improve the overall economy.
About 5 million people—more than 40 percent of the unemployed—have been without a job for six months or more, and millions more who say they would like full-time work have been able to find only part-time employment or have stopped looking entirely. The conditions now prevailing in the job market represent an enormous waste of human and economic potential.
More quantitative easing is here. The Federal Reserve will increase purchases of mortgage-backed securities and agency debt by $340 billion by December 31st, 2012. From the FOMC statement:
The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it 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. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year
More astounding is the promise to continue to make MBS purchases until the employment rate is acceptable.
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
The Federal Reserve will extend their Operation Twist past the June 2012 deadline and downgraded the economic outlook. Originally Operation Twist was $400 billion in Treasuries that were maturity dates of 3 years of less turned into T-bills with maturity dates of 6 to 30 years.
A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.
The FOMC has 10 voting members. The news is clear, those in favor or more quantitative easing are now 8 to 2 and if and only if the economy goes further into the tank.
Nevertheless, the staff continued to forecast that real GDP growth would pick up only gradually in 2012 and 2013, supported by accommodative monetary policy, easing credit conditions, and improvements in consumer and business sentiment
We're sure some will hold out hope against hope that more quantitative easing will happen. After all there are two members of the FOMC leaving the door open on more quantitative easing if the unemployment situation gets worse. That said, the next time you see some major investment group claiming QE3 is sure to arrive, check their interests and why that group is making such a claim. Alternatively just read us, we sure knew QE3 was not gonna happen.
Tin climbed the most in almost four months in London as prospects of low U.S. interest rates at least until 2014 boosted speculation of increased demand for the metal used in mobile phones, plasma screens and cars.
There was a one two three punch by the Federal Reserve. First the FOMC announced uber-low interest rates until 2014.
The Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
Members of the Federal Reserve’s Open Market Committee woke up earlier this week to find a dead fish placed on the steps of the Marriner Eccles building in Washington. Everyone knows this is a traditional Mafioso warning to the recipient that they are soon to be “sleeping with the fishes”. But who would have the audacity to so-crudely threaten the distinguished and eminent governors and presidents of the Federal Reserve System? How about those masters of intimidation and economic terrorism, the Republican Leadership in Congress.
Yes, the warning came collectively from Mitch McConnell, Jon Kyl, John Boehner, and Eric Cantor, in the form of a letter to Fed Chairman Ben Bernanke ordering him not to institute any more monetary easing. The timing was exquisitely deliberate: a day before the FOMC was due to meet to discuss monetary policy and – according to many insider reports – vote to approve some new form of Quantitative Easing.
The letter didn’t exactly say that if the Fed voted for more monetary stimulus the august members of the FOMC would find cement blocks placed around their feet, but it didn’t need to. These are the same Republican leaders who just recently threatened to throw the United States into default if they didn’t get their way. They’ve already got cement blocks placed around the feet of Barack Obama, so they’ve certainly established their bona fides for murderous thuggery.
Early in his tenure as Chairman of the Federal Reserve Board, Ben Bernanke promised to make the workings of monetary policy more transparent. By golly – that’s exactly what he’s done! We no longer read the minutes of the Federal Open Market Committee as if they contain hidden messages as to where policy might go in the future. We even bother to notice who is voting which way; gone are the days when every vote had to be unanimous because any no vote would be considered the equivalent of stabbing the Chairman in the back. These days, the people who vote no want their name out there in bright lights and their reasons spelled out in glorious detail.
The minutes released this week for the August FOMC meeting are a treasure trove of transparency. There is so much transparency because these people at the FOMC don’t know what to do. Some want more Quantitative Easing, but they don’t agree on the form it should take: add even more securities to the Fed’s gargantuan balance sheet (now equal to 4% of the entire GDP of the economy); or, sell some short term securities and buy long term securities in order to manipulate long term rates lower, yet keep the overall Fed balance sheet total unchanged.
The FOMC just did a great thing. The Federal Reserve tied interest rates and 
Welcome to the weekly roundup of great articles, facts and figures. These are the economic and financial finds that made our eyes pop. 
The Federal Reserve will 
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