The Fed's Forward (Mis)Guidance - Muddy Water Clarity On QE

Confounded Interest ^ | 11/20/2013 | Anthony B. Sanders

[whitedog57]

The Federal Reserve released the minutes of the most recent meeting today. The prognosis? Clear as a muddied lake. As clear as smog-covered sky of a thermal inversion summer.

In other words, total confusion.

The Federal Reserve of Chicago’s Charles Evan tweeted yesterday his opinion:

#CharlesLEvans our purchases will continue to be open ended. We may need to purchase 1.5 trillion in assets until January 2015.

Now for the minutes and the possibility of a taper:

“During this general discussion of policy strategy and tactics, participants reviewed issues specific to the Committee’s asset purchase program. They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months. However, participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the program before an unambiguous further improvement in the outlook was apparent.“

So, taper even if there is no economic improvement? That seems to conflict with Evan’s endless QE tweet from yesterday.

“A calendar-based step-down would run counter to the data-dependent, state-contingent nature of the current asset purchase program.”

You mean, the one where Fed asset purchases are taking off like a scalded cat?

WALCL

“A number of participants believed that making roughly equal adjustments to purchases of Treasury securities and MBS would be appropriate and relatively straightforward to communicate to the public.”

Well, they have been purchasing $85 billion per month in QE3.

“However, some others indicated that they could back trimming the pace of Treasury purchases more rapidly than those of MBS, perhaps to signal an intention to support mortgage markets, and one participant thought that trimming MBS first would reduce the potential for distortions in credit allocation.”

Ah, a forward signal (perhaps). Taper Treasuries, but not agency mortgage-backed securities. Thus far, we have seen flat mortgage purchases applications despite quantitative easing.

And the economy seems to be trending downwards, so not much help for Main Street (or savers).

nomgdpyoy (1)

I would like to see a paper saying how low interest rate policies are going to fix the employment to population ratio which has stalled at Jimmy Carter-era levels.

emratio111713 (1)

So, take your pick. The minutes indicate tapering, Charles Evans say no way.

Clear as a muddied lake.

[whitedog57]

The Fed, which should be abolished, just gave us another reason to abolish them. THEY HAVE NO IDEA WHAT THEY ARE DOING!

[Flick Lives]

The Fed’s idea of QE tapering works sort of like a diet where you begin it by consuming an entire chocolate cake every day, with the intention of someday working your way down to a slice and then, someday, magically, losing weight.

[ChildOfThe60s]

The Fed *can’t* slow down printing (QE) much less stop it. It is mathematically impossible.

When a few of the so called economists out there actually get in front of congress or on the Sunday talking head shows and brutally state that, then the SHTF.

All this “will they, won’t they” taper is absolute hogwash. And it’s embarrassing to watch all the “experts” swallow it - or pretend to swallow it. I no longer try to guess whether they actually believe what they themselves say..

The money tricks being employed are very slippery. But the basic mathematical reality is very simple, all the double talk and euphemisms aside.