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Two Previews The FOMC Rate Decision Later Today, In Which Goldman Says "A Little More Easing May Be Needed"
For today's preview of the FOMC rate decision (which should really be called a QE3 decision), we go to RanSquawk which highlights the push and pull mechanics of today's events, and to Goldman which once again makes the explicit clarification that it needs QE3 with the statement that "A bit more easing might be needed in the near term." Yes Goldie, we know you want another year of record bonuses.
From RanSquawk:
PREVIEW: FOMC rate-decision due at 1915 BST (1315 CDT)
Today’s FOMC rate-decision comes in the backdrop of a long-term sovereign rating downgrade of the US by S&P to AA+ from AAA, with a negative outlook. The latest move by the S&P may force policymakers to debate the viability of further monetary easing, as the downgrade could see a rise in the long-term interest rates. Moreover, a sustained reaction from the present crisis could translate into a slowdown in growth, which together with sluggish personal income/spending in the US, and fading temporary factors supporting prices may weigh upon the country’s core inflation further, and in turn force the Fed to act. Although, in its latest communiqué, the Fed said that S&P’s ratings downgrade does not affect the operation of its emergency lending window or its buying and selling of Treasury securities to conduct monetary policy.
The Fed is likely to keep its “exceptionally low” borrowing cost for “an extended period” language, although it may be tempted to use the “extended period” phrase with respect to reinvesting principal payments. A more aggressive approach would be for the Fed to alter its reinvestment policy so as to extend the average maturity of its security portfolio, which currently stands at around 6.1 years. However, this is unlikely to be a favourable option as it may hinder a smooth exit from Fed’s current loose monetary policy. The Fed could signal another round of quantitative easing, although it would be reluctant to do so as this may raise questions about whether the Fed is simply monetising the US debt, which could undermine confidence in the USD and drive interest rates higher.
Some policymakers may opt to slash the interest paid on excess reserves and thus in effect encourage enhanced lending by the country’s financial institutions. However, in Bernanke’s own words, this approach would have little effect on overall financial conditions. A more desirable approach may be for the Fed to open a new lending facility to increase credit availability for targeted sectors of the economy those that need help. The Fed could reduce the secondary credit rate in its discount window or alternatively start to accept a wider range of collateral in exchange for loans offered. This may help the access of funds to a wider economy, and may prevent the danger of big institutions strengthening their own balance sheets as opposed to lending.
Bernanke has been a prominent supporter of an explicit inflation target, and it would be interesting to see any comments along these lines. By setting a higher inflation target the Fed can give itself more room for further monetary easing. Elsewhere, the Fed could lower its 2011 growth forecast for a third consecutive time, which currently stands at 2.7%-2.9%. It may also surprise the market by lowering its core PCE inflation target, which currently stands at 1.5%-1.8%, citing fading temporary factors supporting prices. In terms of market reaction, any indication of further easing would potentially see weakness in the USD, and is likely to support Treasuries and equities. However, if the Fed cuts its growth/inflation forecast, that may exert downward pressure on the currency and equities, and in turn support T-Notes.
It is also worth noting that the FOMC rate-decision is due at 1915 BST (1315 CDT) and there is no press-conference from Fed’s Bernanke following the rate-decision. According to the press-release by the Fed, dated March 24th 2011, the next press-conference by the Chairman will be on November 2nd 2011.
And here is Goldman which makes it 3rd consecutive push for QE3, saying "A bit more easing may be needed in the near term."
Last Friday we lowered our growth forecast further and now expect real GDP to increase just 2%-2½% (annualized) through the end of 2012. Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012. Given the large—and now growing—amount of slack in the economy, we expect the year-on-year rate of core inflation to fall from a peak of around 2% in late 2011 to 1¼% in late 2012. (For details see Jan Hatzius, "Subpar Growth Brings the Fed Back into Play," US Economics Analyst, 11/31.)
What are the implications of these forecast changes for the Fed outlook? Our preferred tool for thinking about this question is our forward-looking Taylor-type rule, which describes how Fed officials have historically set the funds rate using their four-quarter-ahead forecasts of core PCE inflation as well as the expected unemployment gap (actual less “structural” unemployment). (For details see Jan Hatzius and Sven Jari Stehn, “The "Warranted" Funds Rate: Is It Really Negative?” US Daily, March 10, 2010.) Moreover, we have constructed a "QE-adjusted" version of our Taylor rule to take into account the Fed’s unconventional policies—including its “extended period” language and its asset purchase programs (“QE1” and “QE2”). (For details see Jan Hatzius and Sven Jari Stehn,"QE2: How Much is Needed?" US Economics Analyst, October 22, 2010.)
Plugging our new forecasts into our Taylor rule has two implications for our Fed outlook (see exhibit below):
1. A bit more easing might be needed in the near term. Under our new forecasts our QE-adjusted Taylor rule implies that the “warranted” funds rate is currently -1.7%. (This figure is obtained by adjusting the funds rate implied by our baseline Taylor rule, -3.7%, with our estimate of the effectiveness of the Fed's unconventional policies, equal to 2%. For details, see US Economics Analyst, October 22, 2010.) Given a current funds rate of 0.1%, the "policy gap" between the actual and appropriate funds rate is therefore about 180 basis points. Does this gap mean that the Federal Open Market Committee (FOMC) will adopt a third round of quantitative easing? Our answer is “probably not”, unless the economy falls back into recession.
The reason is that the committee perceives asset purchases as cosiderably more costly than an equivalent amount of conventional monetary stimulus, and is therefore not likely to close this policy gap fully. Taking a view on the perceived costs of returning to unconventional easing--and thus on the threshold for the warranted funds rate below which Fed officials might adopt QE3--is difficult. Prior to QE2, we estimated that because of these costs the FOMC was willing to accept a gap between the warranted and actual policy stance worth 100bps in the funds rate. (See US Economics Analyst, October 22, 2010.) Given the backlash against QE2 since then, we believe that the threshold for further quantitative easing has risen, perhaps to something like 150bps.
Unless the economic outlook deteriorates further, we therefore expect that Fed officials will only take two small steps to close some of the policy gap. (Given a 150bp easing threshold, our calculations imply that they might close 30bp of the current 180bp policy gap.) First, we expect them to expand the scope of their “extended period” language to cover not only the exceptionally low funds rate but also the exceptionally large balance sheet. For example, they could rewrite the current forward-looking language in the statement to say that economic conditions “…are likely to warrant exceptionally low levels for the federal funds rate and exceptionally large asset holdings for an extended period” (our suggested change in italics). New York Fed estimates, for example, suggest that pushing out the expectation for the start of balance-sheet run-off by one year would narrow the policy gap by 25bp. We expect that this change will occur in tomorrow's FOMC meeting. Second, we expect the composition of the Fed’s balance sheet to shift toward longer maturities. This could happen via an increase in the average maturity of its reinvestment of MBS paydowns and/or a change in the reinvestment policy for its Treasury portfolio. Although such a change is possible tomorrow, we think it is more likely to occur at a later date.
2. The Fed is likely to exit even later. Our new forecasts reinforce our long-held call for no funds rate hikes until 2013, and suggest that it could be even later. Indeed, our Taylor rule suggests that it could be as long as late 2014 before the first funds rate hike becomes appropriate--around 18 months later than before. This prediction is close to that from a rule estimated by Glenn Rudebusch of the San Francisco Fed (see "The Fed's Exit Strategy for Monetary Policy," FRBSF Economic Letter, 2010-18). Feeding our new forecasts into his rule suggests that the first rate hike might take place in mid-2014.
Judging by the offerless surge in futures (at least for the time being), either we have a massive short squeeze on overnight positions, or someone has already selectively lifted the Fed embargo.
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I don't think anybody on earth still believe our governments worldwide won't print more money.
What the consequence are.... about 0,01% realizes.
People unwound their QE2 positions from a near risk-free trade, in two weeks. We're almost @ July 2010 lows. After QE3, and more 'wealth effect', the adjustment will be even more brutal, and quick. Just in time for the end of the world in 2012
G-20. BINGO!
Spoiled, petulant children stomping their feet.
fascinating. we are drowning in an ocean of excess liquidity and the Taylor Rule says we need just one inch of tide more.
the squid is very careful in advocating more easing without exposing them to criticism if it "was too much"
masterful, just masterful. sometimes I wish I was on their side.
Has anybody some insight why we are off track "according to the Taylor Rule"?
A bit more easing is needed for people on main street you fucks. Why not give some of that money away to the people instead you mofos. If you're gonna print it then you should at least give it to the people who need it instead of floating it to banksters who will use it to buy commodities and jack up the price of oil and food staples. I swear I get so mofo mad when I see this shit and everyone just lays down and takes it in the pooper without nary a whimper. WTF happened to us in this country? Buncha slack jawed faggots we've all become. No offense to fags of course.
mofo?
mofo: "A person who thinks they are the shit, dressed down with sagging pants, a high need for a belt, too much gold to make the national reserve jealous, and an attitude that stems from not having parents who knew how to refrain from the use of crack cocaine"
some people here might disagree
Can't give it to people that need it or are the ones who actually pay for it. They might use it to buy food or something.
Moral hazard after all. Spare the rod, spoil the serf.
GS to world: a bit (read: a good amount) more easing (read: QE3) might be needed (read: will come) in the near term (read: today).
GS copy is easier to translate than the Latin Bible.
Lawrence Myers is on CNBC today.
This guy NEVER gets anything right.
Why do they continue to bring back people who always get it wrong?
http://geraldcelente.proboards.com
The people who always get it wrong cost less for the network and they are useful fools that mislead investors to lose their money.
It's an exercise in diversion. Oh, look over there!! That way the masses don't see what is really happening today. By the time they find out they will have lost everything. Markets are cleaning everybody's pockets today.
Think of it as poetry or music. They invite what is music to their ears, they do not want discord and sour notes.
Truth, reality, accuracy, these are irrelevant in the world of entertainment.
The paragraph that starts with "A bit more easing might be needed..." is handed out on cue cards to all FOMC members as they enter the meeting room. They read from it under the table when preparing their statements for the record. Then BB says at the end of the meeting: good, I am glad we are all unanimous here, QE3 it is, then!
No QE 3 according to this one::
http://www.safehaven.com/article/22012/qe3-coming-soon-treasury-tips-say-no
QE3 will be useless. We've reached the end. Game over.
ES overnight popped 70 points over 3 hour - squids working overtime to frontrun their puppets in the Fed. How long will the QE3 high last? 3 months? 3 weeks? 3 days?
3 days maybe. Right now Europe is the driver of this bus going over the cliff. European banks are afraid to lend to one another right now. Trust is gone. They're following the US script from 2008. GAME OVER!!
Duration will be a function of how many are fooled by it. The S&P-anking seems to have gotten people to pay attention more closely to the sleight-of-hand tinkering. Plus, folks aren't apt to rush their money back into a burning building that they just jumped out of.
From inside the FOMC (channeling Indiana Jones): "I don't know...I'm makin' this up as I go."
Key phrase is "near term." If you have no plan (other than to kick the can and cross fingers), the near term and the long term are one and the same.
x
WHAT #UCKIN FOR 'A bit more easing might be needed in the near term. '??
exactly.. did Jaoanese try this kind of nonsense for what , 10,15,20 years in row? result is NIKKEY on 08/09/2011 9000 , fully 75% below top in 1990..
chill guys,, market wont be back 1500 by end of 2011, its not that simple.. FED is out of bullets.. 3 trln balance sheet, zero rates.. nothing can be done..
see s/p in low 900x.. and in 2013 , after elections in low 400x
alx
Markets getting reading for a dead-cat bounce to reel in a few suckers. Oh boy, such predictability.
Why has the guy who runs this board never been invited on CNBC?
This guy gets most of his shit right.
How about Gerald Celente? That motherfucker called 2000 dollar gold years ago.
It puzzles me.
http://geraldcelente.proboards.com
well, Gerald is v.v. famous.. he is often on RT, sometimes even on FOX..
ZH is not run by one guy ( in name of Tyler ), but bunch of smart guys , probably traders, who dont need flash on TV to score on gals..
anybody w/ reasonanble amount of money, probably upto million $ per year, could re-create content here .. truth is out there...
anyway, Tyler@ZH is the best..
alx
I believe in their fraud and games. Last round could have waited or been avoided but they did it anyway. Now they're demanding it or else the whole world will crash.
Congress is too busy on vacation for a month and Obama is campaigning.
QE3 already begun behind the curtains. They're already onto figuring out how to pilot QE4.
I just wish someone would yank the bernank's rotary wing rating and keep that helicopter grounded!
Premarket now at +129 World of idiots looking for the last crumbs as the Feds polish off what's left of the economy.
What? The scalded chimp is running deep out of the hole because GS is previewing QE3? Who could have seen that one coming?
Seems to me that The Squid could do with a little easing - with a rusty crowbar up its rectum... just for starters.
Any volunteers?
Q the...bu lu ack hole ...Bitchez.
Poor buggars, people have been showing up to work ...FOR NOTHING BUT A BIG FAT ZERO NOT EVEN THEIR KIDS CAN AFFORD TO PAY FOR!!! http://www.youtube.com/watch?v=rqvNUUmtMM0
If you think in terms of Obama's reelction: They will most likely wait a bit longer, ride the wave of Tea Party hate...at least until Jackson Hole.
When these scumbags can't profit on their own they try to screw the American people (or anyone else).
It seems to me that this fall in the markets has been constructed for the express purpose of bringing in QE3 - Obama has been strangely quiet over the last few days, S&P have been set up as the fall guy - job's a good 'un
Owe-bummer is enjoying a 'mini-vacay' at Camp David.
http://latimesblogs.latimes.com/washington/2011/08/obama-speeches-deficit-debt-downgrade.html
The last line of the above article was spot-on:
7:53 am Eastern...pre market DOW at +154. Could it be that rumours of The Bernank's Toilet Paper Printing Presses will crank out more inflation and dollar depreciation? Ah, but the crowd yelled for more as Rome burned around them and the band played on as the Titanic sank. Bwah-ha-ha.
Print Benny. When JPM/HSBC lose control of Silver, I'll be laughing all the way to the bank! Hey Blythe, wanna make $10 the hard way?
There are two different types of money in circulation
"Traditional" money that everyone would like to own.
and
Fiat Money that everyone will have had more than enough of very soon.
The sheeple are still greedy for Fiat Money.
The game will change when people start demanding the government honor its obligations regarding "Traditional Constitutional Money"
The part of the US Constitution that deals with lawful money must be starting to haunt the dreams of the PTB as they try and craft a centrally panned solution to all this.
The nightmare that would never happen ... is happening.
The sheeple are stirring...
Gold is moving through the economic veins once again..
Capitalism has diagnosed it's own hidden disorder and is grasping for the only possible cure...
The witch doctors who have watched the once healthy patient slowly whither and almost die are in fear of the realization, that the patient may now know how to cure himself.
The witch doctors cannot survive if the patient no longer needs them..
Watch carefully as the witch doctors of finance try to craft a cure that partly admits the truth but leaves the door open for their future expertise to be called upon.
The patient called Liberty must never be allowed to fully walk again, but must be kept in a state of subservient dependance, never knowing the true cause of their sickness, less they cast off the foul yoke of Fiat poison.
Central planners of all stripes beware, your greatest weapon is losing its effectiveness. The markets no longer want it, and soon the people will no longer want it.
Central banking and other forms of organized coercion will one day be the historical curiosities that they deserve to be.
Your time is almost at hand, history will not look kindly on your deeds...
bitcoin... money of the future http://www.silverrevolucion.com/index.php?category=bitcoin
The appetite for fiat will never die. Just like the appetite for junk food can never be satisfied no matter how fat, sick, and out of shape the victim gets he still wants his Twinkies, Big Macs Doritos and Big Gulp.
Junk food junkies dont want good food, they will ignore it in favor of junk.
The fiat crowd does not want ridiculously overpriced gold and silver, they want more paper and more and more of it as it becomes worth less and less.
Healthy people dont want junk food or junk money. How many of them are there, not too many.