There is no limit to the asset purchase program. Fed shocked the markets, not only without making any changes, but making it clear that everything that was signaled in the past few months, ceased to exist. No wonder that in such a situation, investors began to sell off the dollar and began to buy stocks.
Since the beginning of this year, takes place discussion of the limitations of ultra-expansionary monetary policy. This behavior is completely justified - in the American economy, there is a palpable recovery. The improvement in the labor market, although somewhat uneven, is consistent. Many other indicators confirm decent growth rate, and even some of them are already pre-crisis levels. Looking at the production or GDP relative to the hole in 2009, the U.S. looks infinitely better than Europe, even Germany itself. In this context, Bernanke conference in June was courageous, but also logical. Fed Chairman then gave a clear message: to improve the situation the Fed will slowly withdrew huge support that he gave to the markets and the economy (I mean QE ).
Changes were obviously depend on the incoming data, and that the last was a bit ambiguous (a decrease in the unemployment rate, but a smaller increase in employment) market expected QE symbolic cut by 10 - 15 billion dollars and more dovish tone. But most importantly, it was expected that the program will systematically reduced and the middle of next year, the Fed will not be buying anything.
Now, it has no significance.
Bernanke basically withdrew from everything he said in June. He no decision to restrict it would not be a shock even if Bernanke said, we want to make sure that employment will continue to grow at a decent pace and, if so, we will limit according to plan. But nothing like that was said.
Instead, Bernanke suggested that:
- Fed fears that higher yields hinder recovery;
- The unemployment rate is the wrong indicator of the labor market (!);
- QE can be reduced up to end of 2014;
- most members of the FOMC expects that even in 2016, when the economy reaches full employment, the main interest rate will be the end of the year, only 2%;
The first suggestion is particularly important. Even in June, Bernanke suggested that the Fed does not care so much market reaction. At the last meeting of the ECB's Draghi said that the higher rates reflect in part the revival (which after all in Europe is much weaker than in the U.S.). However, now Bernanke says if the market will be played under the tapering, we will simply not make it because they do not want an Yield. And that's a huge change. Moreover, the market interprets it in the context of taking the seat by Fed chief Yellen. The head of PIMCO said Thursday that Yellen is a dove by big D.
On Friday we had the speech, members of the Federal Reserve
On top of Thursday's event commented George:
- "decision not to cut was disappointing";
- "improvement in the labor market is very large and is sufficiently positive";
- "slow cutting now begun to allow markets to adjust";
- "Fed needs the credibility of its forward guidance";
- "Fed payrollsy heavily influence the short-term".
followed we heard Bullard:
- "Fed don't should raise interest rates if inflation is below 1.5%";
- "definitely recommend more QE if inflation will be below 1%";
- "All members of the Fed worried about a potential bubble in the market. Technology bubble and the real estate market has not been a secret. This time you can not see the main endangered assets";
- "The new head of the Fed is likely to continue the current operations", read Yellen :)
regards,
oscarjp
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