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The Taper Tapers

January 29th, 2014 - 12:04 pm

File this one under “Happy to Be Wrong.”

Consensus that the Fed would extend its $10bn taper from December with a further $10 bn taper today (reducing the monthly flow to a ‘mere’ $65 billion per month – $30bn MBS, $35bn TSY) was spot on. We suspect the view, despite the clear interconnectedness of markets (and flows), of the FOMC is that “it’s not our problem, mate” when it comes to EM turmoil.

*FED TAPERS BOND BUYING TO $65 BLN MONTHLY PACE FROM $75 BLN
*FED SAYS LABOR MARKET `MIXED,’ `SHOWED FURTHER IMPROVEMENT’

Of course, “communication” was heavy with forward guidance on lower for longer stressed.

That’s still a lot of funny money, but at least the floodgates have been closed a little.

All Comments   (6)
All Comments   (6)
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And what is going to happen when the Fed stops buying Treasuries? Those interest rates will have to start going up, right?
11 weeks ago
11 weeks ago Link To Comment

I don't think they will at the moment. Not-necessarily-coincidentally, the Fed tapered by approximately the amount that Treasury net debt issuance was reduced by the sequester. This is another data point that supports the idea that QE is monetization, not stimulus.

If the Treasury has to increase debt issuance due to the new budget, then I'd guess QE will increase (all other things being equal). In the short term, an increase in Treasury rates will only happen if people start to get the idea that the Treasury can't or won't pay out on the existing debt. The only other way is for demand-driven inflation to get started, and I can't see that happening when the feds are reducing everybody's disposable income through aggressive taxation and regulation.
11 weeks ago
11 weeks ago Link To Comment
"Baked in" as I've described the coming disaster too many times to count.
11 weeks ago
11 weeks ago Link To Comment
"We suspect the view ... of the FOMC is that “it’s not our problem, mate” when it comes to EM turmoil."

I cannot say that I disagree. For all its warts too many emerging (and established) markets look to Washington for leadership and a bailout. Some pushback is called for now. The US is no longer half of global GDP like we were in 1950. All of those other markets and central banks should take greater responsibility for their own health.

Also:

"*FED SAYS LABOR MARKET `MIXED,’ `SHOWED FURTHER IMPROVEMENT’"

Say WHAT!!!? In what universe does a shrinking labor force show "improvement"? The Fed is executing the right actions but for the wrong reasons.
11 weeks ago
11 weeks ago Link To Comment

Labor, shmabor. Watch what they do. Fed lady speak with forked tongue.
11 weeks ago
11 weeks ago Link To Comment
Jeebus. We're still dumping $30b/month into mortgage backed securities? WTF?
11 weeks ago
11 weeks ago Link To Comment
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