Goldman Sachs is still the Fed’s favourite counterparty for buying and selling Treasuries – or at least it was in the first quarter of 2011. The data comes out two years in arrears and we are now at the period when $600bn of QE2 purchases were in progress.
Goldman got twice as much of that business as anybody else, which is mildly embarrassing for the New York Fed, but reflects the pecking order in the Treasury market. If you know what happened to Citi’s business during that period then please explain in comments.
Martin Weale’s speech today shows how far the policy debate has shifted at the Bank of England. As recently as early July, this external member of the monetary policy committee was voting for higher interest rates. Now he is openly talking about restarting quantitative easing.
Mr Weale should certainly be praised for being as good as his words. In March he said he was perfectly happy to change his mind if the facts changed and he has done so. No longer voting for a rate rise does not indicate a previous error of judgment, only that circumstances have changed.
From his speech today, Mr Weale, one of the more hawkish MPC members, now clearly thinks that UK QE2 might be necessary and he believes it would work.
Charts often circulate that show the size of the Fed’s balance sheet alongside movements in commodity or stock prices – they are used to make a prima facie case that QE2 inflated commodity prices.
Here is a not-very-good version but the best I could manage with FRED (note to St Louis – it’d be lovely to have the GSCI index plus all the numbers from H.4.1). Another one you often see is commodity price movements on the days when the Fed actually conducted QE2 buying.
The New York Fed has announced its schedule for the final purchases under the $600bn programme that began last November. After that, the only purchases will be reinvestments of maturing MBS, which are now down to $12bn a month.
I’ve written here before that one possibility under discussion at the Fed is tapering off its $600bn QE2 asset purchases in order to minimise market disruption when they end.
Today, president James Bullard of the St Louis Fed raised the option of tapering so total purchases when the programme stops at the end of June are less than $600bn.
“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets”
Mr Bullard told reporters after an interesting speech that he would favour a small reduction in the programme at the next meeting in March to reflect the better economic outlook.
Several market commentators have also put forward a slightly different version of a taper:
In its statement today the FOMC removed language about buying assets at a pace of $75bn per month, causing a bit of a stir in the markets.
In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.
There are a few ways that you can read that:
I agree with my colleagues at FT Alphaville that “counterfactuals are inherently tricky” but I don’t think they quite get to the heart of the case that you could mount against the new estimates of the effects of Fed stimulus programmes that Janet Yellen cited in her speech on Saturday.
Those estimates are that inflation is one percentage point higher than it would be had the Fed made no asset purchases and employment will be 3m higher than it would have been in 2012.
It’s important to note that David Reifschneider, senior associate director of the FRB’s department of research and statistics, and John Williams, once of that parish and now research director of the San Francisco Fed, are co-authors of the paper. That means this is as close to an official ‘Fed view’ as we are ever likely to get on the effectiveness of QE.
The NY Fed has announced its tentative schedule for bond purchases through to mid-January. The Desk plans to buy $105bn in Treasury securities. Two observations:
(1) It’s a little less than expected. The $75bn related to QE2 is unchanged, but the schedule includes only $30bn for reinvestment of mortgage prepayments, less than the $35bn a month predicted as of the beginning of November. That suggests the rise in 10-year rates is already affecting the NY Fed’s forecast of mortgage prepayments. I’m trying to find out a bit more about this but with an FOMC meeting next week I doubt the FRBNY will be especially forthcoming.