From the FOMC statement:
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. Read more
The European Systemic Risk Board, the European Union’s macroprudential authority, has this evening called for the region’s supervisors to cooperate on efforts to strengthen bank capital.
The move comes less than a month after Christine Lagarde, the IMF’s managing director, was panned by many for calling for a recapitalisation of European banks.
This from the statement: Read more
Is Jens Weidmann, Germany’s Bundesbank president, rallying opponents of the European Central Bank’s government bond purchasing scheme? The Frankfurter Allgemeine Zeitung reports he hosted a secret meeting on Tuesday in the wine region that surrounds Frankfurt. Those apparently invited included Yves Mersch and Klaas Knot, his counterparts from Luxembourg and the Netherlands who are similarly conservative-minded.
Germany is awash with conspiracy theories these days about the ECB, and the idea that Mr Weidmann would want stiffen the sinews of other opponents of its bond buying – which has exceeded €70bn in the past six weeks - might appear plausible. I have heard an alternative version of the story, however. Read more
The minutes of the September Monetary Policy Committee meeting make QE2 a matter of when, not if.
However, as FT Alphaville’s Neil Hume writes, the MPC also discussed three other options. From the minutes:
The Committee also discussed a range of other possible policy options including: changing the maturity of the portfolio of assets held in the Asset Purchase Facility; revisiting the earlier decision not to lower Bank Rate below 0.5%; and providing explicit guidance about the likely future path of Bank Rate beyond the information about the Committee’s judgement of the medium-term outlook for inflation contained in the Inflation Report and the MPC minutes. At the current juncture, none of these options appeared to be preferable to a policy of further asset purchases should further policy loosening be required.
How likely is each of the three? Read more
None of Adam Posen’s fellow members joined him in voting for more quantitative easing at the Monetary Policy Committee’s September meeting.
However, that they did not was, today’s minutes note, a “finely balanced” decision for most of the other members “since the weakness and stresses of the past month had significantly strengthened the case for an immediate resumption of asset purchases.” Read more
Many thousands of words have been written over the last couple of months about the likelihood of an ‘Operation Twist’ when the Fed announces its monetary policy decision at 2.15pm ET tomorrow afternoon. The rates strategy team at Deutsche Bank estimates that markets are pricing in a 50-60 per cent chance of an ‘active’ twist (with sales of short-term securities) and a 70-80 per cent chance of a passive twist.
I wrote a full preview for the paper as the Fed was going into blackout. I agree that a Twist is the most likely outcome of the meeting but I just want to make a few points about why it may all be a bit more complicated than people think. Read more