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Fed tapers: $10B reduction in purchases
Topic Started: 19 Dec 2013, 06:14 AM (4,053 Views)
miw
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Surprised the markets a bit by the looks. But very doveish statement about the Fed Funds rate. The only dissenter on the FOMC was one of the doves this time.

Market plunged at first and then rallied strongly as people read down as far as the words on interest rates.

AUD plunged to 0.8816 and then swung the other way. Currently at 0.8920.

Fed to taper $10B per month

It's here: The Fed announces a $10B per month taper.
Fed funds target unchanged at 0-0.25%.
Treasury purchases cut to $40B per month.
MBS purchases cut to $35B per month.

Quote:
 
FOMC PRESS RELEASE

Release Date: December 18, 2013
For immediate release

Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace. Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated. Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Esther L. George; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.

Statement Regarding Purchases of Treasury Securities and Agency Mortgage-Backed Securities (200 KB PDF)
The truth will set you free. But first, it will piss you off.
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newjez
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Interesting reaction. Interesting timing too.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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miw
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newjez
19 Dec 2013, 06:40 AM
Interesting reaction. Interesting timing too.
My portfolio has been like a roller coaster tonight.

I forget to mention gold. It has done bugger all relative to other asset classes. Traded in a very tight range really. I guess most of the people who do gold must have gotten their calls right.
The truth will set you free. But first, it will piss you off.
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goldbug
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The fed can taper all it wants because the primary dealers can pick up the slack and allow the US government to meet its social security and military obligations. Here is a list of the primary dealers.

http://www.newyorkfed.org/markets/pridealers_current.html

J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Citigroup Global Markets Inc.
etc
etc.

I think from memory most of the fed stockholders are on this list, big banks that have been re-liquified by the fed by loading up the government balance sheet. (Future commitments pushed onto the American citizens).

So what does it matter in the scheme of things if the fed tapers yet the owners of the fed don't. They are really just one in the same, a cartel that controls the debt and currency flows under the cover of what most people consider is actually a Government institution.

Edited by goldbug, 19 Dec 2013, 07:03 AM.
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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miw
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In the past gold has actually been quite a bit more volatile than shares and bonds around the time of FOMC statements. It went absolutely birko in September.

The relatively muted reaction on the gold market is pretty interesting, whatever it might mean.
Edited by miw, 19 Dec 2013, 07:08 AM.
The truth will set you free. But first, it will piss you off.
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newjez
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The aud is having fits. Doesn't know what to do. It willbe interresting to see what Asian markets do. Strange timing just before the holidays. In the scheme of things it doesn't mean much. But its the principle which matters.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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miw
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newjez
19 Dec 2013, 07:26 AM
The aud is having fits. Doesn't know what to do. It willbe interresting to see what Asian markets do. Strange timing just before the holidays. In the scheme of things it doesn't mean much. But its the principle which matters.
I think to some extent it is actually the USD having fits. From a US point of view the forex markets have no clue which way to run and it has tried all directions.

funny to watch, especially if you don't hold any forex positions. Guess what time the FOMC statement came out. :pop:
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Edited by miw, 19 Dec 2013, 07:38 AM.
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hoofarted
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I love it. The funny thing is that we all have a position in the market.
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miw
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hoofarted
19 Dec 2013, 07:54 AM
I love it. The funny thing is that we all have a position in the market.
Yeah. But some of us are in on purpose and some of us are just along for the ride.
The truth will set you free. But first, it will piss you off.
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newjez
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The Dow is going ballistic. So glad I didn't decide to short it. I really thought it would drop.
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