At the last Fed meeting officials said in a statement that they were prepared to complete their planned purchase of $1.25 trillion of Mortgage Backed Securities. So far the Fed has bought $625 billion and that is what brought mortgage rates down. So with nearly half the allotment yet to go the outlook for mortgage rates had been lower.
Until this news:
"Fed May Not Need to Buy All Authorized MBS, Two Officials Say"
| Richmond Fed President Jeffrey Lacker said yesterday in a speech in Danville, Virginia, that he’ll evaluate “whether we need or want the additional stimulus” from buying the full amount. St. Louis Fed President James Bullard, speaking to reporters in Little Rock, Arkansas, said “it might not be necessary.” |
What brought on the change of heart? Simple...the Fed has under attack from every direction, so they're extremely sensitive to the "inflation" criticism. And they cannot defend themselves (not that Bullard of Lacker would even know how) because most people believe the, "Fed is fostering inflation," story.
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AND WE ALSO KNOWN THAT MOST OF THE FED OPERATES IN A WORLD WHERE MOST THINK THAT SOMETHING ELSE BESIDES THE FED'S OWN FANCY DETERMINES INTEREST RATES.
Right! Even many members of the Fed believe that.
I think this would be a large departure from the current FOMC plan, stated as recently as Aug 12th. (and would kill the small bond rally, ugh!)
Scott has always been quick to point out to me on other issues that the St. Louis fed are the "monetarist" branch, so they are probably very uneasy with the current balance sheet growth.
If this is a bit of a rogue info. operation by Bullard and Lacker, I would think that it would quickly be countered by people closer to the FOMC next week, if we do not see such a counter, then they may be really considering curtailing the MBS program.
Matt,
I just do not see how the Fed's "non-monetarist" camp can hold out against mounting criticism and attacks on its conduct. Granted, Bernanke was reappointed by Obama, however, it may have been with the tacit understanding that he give in to calls for more "prudence." The Fed recently lost a lawsuit filed by Bloomber LP under the Freedom of Information Act. I just don't see how they can parry all these attacks. My guess is that they will stop the buy program. I would love to short the back months in the euros.
Mike do you mean the Euro forex or the Eurodollar Futures?
Eurodollar futures, Matt.
Mike,
BTW Noooooooobody else is talking about the extreme levels of the Eurodollars these days....
If the printing money/inflation crowd is right, then the Fed will have to increase interest rates, Eurodollars go down.
If things arent turning around and we go back into a second round of a global USD credit crunch, Eurodollars go down (thats what happened last fall, LIBOR went up as USD credit became harder to get over there)
At about 99.7 there doesnt seem to be much upside to the Eurodollar (this weeks negative Swedish interest rates not withstanding), I guess the risk would be if rates stay at these extremely low levels for years like Japan.
Yes, where's Schiff, forecasting this??
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