Goldman's Take: "Fed Returns To Monetary Easing"

Tyler Durden's picture

Goldman demanded it, Goldman ordered it, Goldman got it.

Fed Returns to Monetary Easing

BOTTOM LINE: Despite three dissents--the largest number since 1992--the committee adopted an even easier policy stance than expected: first, the committee now anticipates that rates will stay on hold "at least through mid-2013." Second, the committee effectively signaled an easing bias saying that it is prepared to employ additional easing steps as appropriate.

MAIN POINTS:

1. As expected, the statement included a significant downgrade of the economic outlook. The committee views growth as having been "considerably slower" than expected, highlighting "deterioration in overall labor market conditions," "flattened out" household spending and that the supply chain disruptions can "account for only some of the recent weakness in economic activity."The committee furthermore stresses that "downside risks to the economic outlook have increased."

2. The committee adopted an even easier policy stance than expected. First, the committee now anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate "at least through mid-2013" instead of "for an extended period." Although some form of strengthening of the guidance language was expected and the new guidance remains conditional on the economic outlook, we see this step as a dovish surprise. Three members--Fisher, Kocherlakota and Plosser--dissented from this decision, the largest number of dissents since November 1992.

3. Moreover, the committee effectively signaled an easing bias saying that it discussed "the range of policy tools necessary to promote a stronger economic recovery" and that it "is prepared to employ these tools as appropriate." In our view, this leaves open the possibility of further asset purchases ("QE3") should the economic outlook deteriorate further from here.

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JuicedGamma's picture

I think I'm turning Japanese, I really think so....

Popo's picture

I'm not sure I agree with the analysis that "Goldman ordered it.  Goldman got it".

There was no new round of QE announced today.  Just some words about "standing at the ready".

What we just saw was what a lot of people expected we'd see:   Jawboning and nothing else.

The Fed is out of bullets.  Their last round of QE utterly failed in every possible way **and** wrecked the dollar to the tune of 20% of its value.    

The Fed was faced with a crashing market and no bullets, so instead of shooting they pointed their gun and threatened to shoot.

So far, the market believes the skit that was just acted out on global television.  But soon enough they'll figure out that it was only a skit.

Sure, it could still happen.  But I sure didn't see Goldman getting QE3 just now...

 

Robot Traders Mom's picture

Very well said Popo. Gut reaction that will come back in the morning in a big way...

kaiserhoff's picture

Yes, Popo, but failure is so familiar and comforting.  Let's by all means have more heaping gobs of it.

I'm waiting for the five year to go negative 5%, then I'll back up the truck.  What can these idiots be thinking?

NumNutt's picture

Wow, sure glad the market closed up (dow 420+) for no good reason. Hmmm couldn't be any market manipulation going on could it? Lets see just after midnight dow futures go from approx 10,500 to 11,000. Hmm then all day they are headed down just to go from negative up 420 points to finish above the all important 11,000 mark. What a fucking joke, oh well, common everyone get your free cash while the US gov is handing it out. Maybe I should buy some BAC shares since I am sure they will be bailed out by the fed in 3, 2, 1, .....

nope-1004's picture

Need more debt to pay our debts.

What a wonderful world.

Iriestx's picture

I feel like I'm taking crazy pills.

SheepDog-One's picture

LOL go ahead FED, 'ease' away, as the dollar tanks and gold flies to the sky.

'FED can take steps for more Queezing from here should conditions significantly worsen'...so we're looking at Armageddon shortly then?

HelluvaEngineer's picture

In other words "We're going to sell to you, morons."

Clorox Cowboy's picture

And the market rallies...what a bunch of spineless cowards out there.  Don't fight the Squid...I mean Fed.

Iriestx's picture

"The reason we can't pay off our credit card debt is because they won't loan us any more money, so we're going to shop for some additional credit cards from other companies to borrow more to pay off that credit card."

 

Sound financial decision making from the world's supposed best and brightest leaders.

Stax Edwards's picture

No QE3.  They got a statement that ZIRP lasts till 2013.  I disagree that Goldman got what they wanted no matter how you try and spin it.  As of today, No QE3 is the takeaway.

Even you (TD) claimed QE3 was coming yesterday. 

About F'N time IMO.

Tyler Durden's picture

Considering that it is Goldman itself saying they got more than it wanted, we fail to see the spin... And taking out 2 year of duration risk is effectively the same thing as Operation Twist 2. In case you missed it, the 2 Year is trading inside both IOER and Libor.

But yes, no LSAP.

That will come in due course.

LawsofPhysics's picture

yep, the Fed and the banks are indeed getting what they want for now.  People piling into treasury paper that is returning less and less.  At all costs, the debt must remain payable.  Jews and banks care about only two things, gold and usury.

Socrates's picture

"Jews"?- what a good little Nazi you are. I thought your stinking carcass died at Stalingrad screaming, "But the Fuehrer said he was sending winter clothing"....I hope you die slowly.

Watauga's picture

I abhor the anti-Semitic remark, as well, but seriously, why would you say, "I hope you die slowly."  That seems awfully un-Socratic to me, Socrates.  I would prefer to read your brilliant analysis that makes the anti-Semite look like a fool.

Snidley Whipsnae's picture

Question TD... Do you believe that the Fed is afraid to QE aggresively due to another credit down grade hanging over the US? I'm curious how much, if any, a possible downgrade influenced their decision? Thanks, you guys/gals do a terrific job!

Greater Fool's picture

Yeah, guess I hadn't seen the benefit in the two-year promise right away, but last quarter 2Y Fed Funds swaps went as high as 75bp, for a little while anyway. Same instrument traded at 17bp yesterday and will probably be lower still tomorrow.

Not that this helps you unless you happen to fund at OIS....

slaughterer's picture

Tyler and Goldman are right (I leave it up to you to decide who is more right).  The HFTs are obviously going in Goldman's direction.  For tape followers like me, that is all that matters.   The duration risk has been reduced substantially for the big boys.  Add to that, the LSAP, which will come at JH "in due course," this is explosive.  You really need a staff member schooled in Fed hermeneutics to understand how bullish this Fed release is.  The whole rest of the year of trading is laid out for us today.  Thank you Tyler, thank you Ben, thank you printing press.  

XenoFrog's picture

So no QE3, just continued easing as necessary. Did you think they would come right out and call it QE3?

Ned Zeppelin's picture

Agree that the next move may not have an obvious label on it - I did not expect a big QE announcement and this FOMC statement is decidedly nuetral, but if GS wants t read into it, I guess we can't stop them.

Is the dollar down/equities up correlation in full swing this afternoon post FOMC? Why would stocks be rising as the 10 yr rate is falling? Mysteries wrapped inside enigmas.

Stax Edwards's picture

No I don't expect that saying ZIRP will last until at least 2013 would be called QE3 because it is not QE3.  As for rolling maturing issues back in, this was already known.

YHC-FTSE's picture

"Just continued easing as necessary". Well that is QE, so saying no QE3 is a tad bit misleading, no? Since we don't know when or even how much easing there will be, I guess we'll just have to wait until they feel like it, and a few billion is sneaked into the markets. Will we then declare to all and sundry that's what we thought all along? Or will we play with semantics to justify the fluff and bluff. 

 

I hate this convoluted clap trap. "The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings". Well if we knew how much they got coming, we'll know how much will be reinvested. 

 

The economic outlook is bleak. I think we're all on the same page about that, even the msm. But the potential here of "More of the same", looks very much like good news for short term equities, particularly software, insurance, and luxuries (As per Credit Suisse recommendations on debt ceiling extension). It feels wrong, but that never stopped people from making money off it. What do you think?

TheAlchemist's picture

It's not what I think, it's what I'm doing:

 

Selling depreciating assets, spending less money, and saving more in a fashion I see fit.

SheepDog-One's picture

This is just shit stew statement, 'Yea things will be extended, more 'measures' can be taken blah blah blah'.....certainly this is no expected C-130 drop of pallets of free trillions to Wall St.

As markets now do 2% apeshit swings based on nothing like a manic depressive.

Greater Fool's picture

Man, those guys pack a mean bowl of hopium.

schoolsout's picture

with extra kief sprinkled on top for good measure?

TruthInSunshine's picture

Nice spin, Goldman.

In the meantime, the algos are going wild trading LULU back and forth, while no one wants to write anything about any 'trend' as VIX has taken a moonshot.

Go long the precious and VIX, bitchez.

SeverinSlade's picture

Anyone care to venture a guess as to how long this BS rally lasts?

T-minus 2 weeks and 3 days until Jackson Hole.

TradingJoe's picture

My "Guess": S&P @ 1100 before JH!

Ned Zeppelin's picture

Pretty thin reed to be basing a strategy of buying US equities right now.

irishlink's picture

All the countries who need a weak Euro are now sidelined. They have nothing but strikes against them. Austerity . strong Euro, high debth ,plunging GDP. Sounds like a great  recovery plan.

chet's picture

" As expected, the statement included a significant downgrade of the economic outlook. The committee views growth as having been "considerably slower" than expected, highlighting "deterioration in overall labor market conditions," "flattened out" household spending "

In bizzaro world, all of this means we should buy stocks.

fonestar's picture

global hyperinflation before 2013?

Hacked Economy's picture

The target timeframe to expect the final roll-off of the slippery slope is about late 2012 to mid-2013. We're setting the final pieces on the stage now...get your popcorn and find your seats in time for the show.

Youri Carma's picture

My best guesstimation would be that the year 2013 will be D-Year the final hyperinflation fase.

 

But who knows? Could come a lot quicker now in this hyperbolic fase of gold.

buzzsaw99's picture

LMAO Like we didn't already know it was gonna be zirp 4evah bitchez!

 

It's a man baby!

http://www.youtube.com/watch?v=WgOIEGz7o_s

 

monopoly's picture

Looks like we may be in the right investment for the next two years. lol

gangland's picture

 

ot, manchester riots video supposedly 30 minutes old

http://yfrog.com/jbmb8z

http://www.pycsessions.com/wp-content/uploads/2011/08/xm3ie.jpg

certainly no florence and normandy...

Scalaris's picture

So the American + Eurozone economies are fixed now, no?

Scalaris's picture

My mistake, Bloomberg just said that DOW = +300 points so world economies have just now been fixed. I guess.

gangland's picture

 

Victory gin on the house!

-Michelle-'s picture

Isn't it wonderful? I'm going to just go sell all my PMs and start loading up on Apple products. Life is grand.

irishlink's picture

And next month Obama will start his bid for another term and he will refute the entire FOMC report. This will be the SPIN of SPINS

alien-IQ's picture

USD plummeting = Mission Accomplished.

unionbroker's picture

there is only one buyer of stocks and they will always pay higher so don't fight it

etrader's picture

Speaking of Goldman...

Great uncle warren is now under water on his stock postion