Fed to Spend $40B a Month on New Bond-Buying Program
FBN's Fed Panel reacts to the Fed's decision to launch a new bond buying program.
- Duration 9:16
- Date Sep 13, 2012
FBN's Fed Panel reacts to the Fed's decision to launch a new bond buying program.
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Hi thanks -- let's bring in a -- of our panel.
Including a newcomer former Federal Reserve senior advisor Stephen all -- are now with American Enterprise Institute.
-- looks -- we got a three for the Fed acted on extending low rates -- -- on Operation Twist and it's gonna spend maybe.
-- fifty billion more on quantitative easing what do you -- Yet this is a really aggressive action and not only acted both on quantitative easing and on extending the language but they went all in on both scores.
I'd say on.
On the forward guidance out what's really new here is that they.
Added the language indicating that policy would remain highly accommodative even as the recovery progresses which means that they're trying to signal that.
Even after the first rate hike.
The rate hikes after that are gonna come slowly.
All right on that QE side.
OK OK I wanna ring -- Scott -- here to talk about -- market reactions Scott because obviously we're saying and now we're we're pulling back a little bit we're up about 7475.
Point Scott Howard dot backed down at 1030 points is a system market getting one at one end.
Is -- something in the statement that they're now saying they don't like talk to me.
-- well look sure I didn't -- got exactly what -- -- -- I mean this is absolutely incredible gold in the commodities have gone absolutely knots and -- you're -- people pilot of that trade but surely you know you.
They talk about something that the Fed said this and we want to help keep mortgage rates lull I mean why mortgage rates need help staying low.
They need to adequately reflect the risk that's in the mortgage rates you can't just take those rates down and just say hey everything's okay you don't -- have to take risk on a because the rates are high that's not good the long term extension of -- Operation Twist is not a good idea in my point.
Because look the bank model to borrow short lived long that's getting absolutely crushed.
Yield curve is so -- you basically can't even see it but it's time that starts going up as far as long -- rates might my daughter might be graduating high school and she's two years old right now.
Peter -- the Fed gaze at three -- you must be horrified.
First of all it's not the gold market that's going not it's the Fed -- an Operation.
Twist it's it's operations grew.
You know and if you if you don't wanna be left -- in the -- you better by some of that -- before it gets a lot more expensive I think this really may be is the final nail in the coffin.
For the US dollar and for the US economy.
The Fed is living in a fantasy land if it thinks more printed money is what we need to revive the economy what we need is -- is -- -- to revive the -- economy is -- K -- the Fed.
Interest rates have to go up.
Mortgage rates are too low they have to be allowed to rise if we're gonna keep -- pretty money and artificially suppressing interest rates we will destroy what's left to this economy.
And you listen to what the Fed is doing.
Hot and -- look at the markets look at the bond market the bond market is now down treasury yields are now higher despite the fact that the Fed is gonna -- all this money to buy bonds traders are selling into it and that's the right thing to do because the worst thing for the bond market is for the Fed to buy bonds the other day -- -- money out of thin -- to do it and that means bonds are less valuable and inflation's gonna run out of control to look at it PPI came out today up one point 7%.
-- -- It because it's -- -- Often hear -- -- let me bring in Sam -- all of us why because Sam one of the things that minister Bernanke said in his Jackson Hole speech last week he said that bond buying could help.
Were at -- point 1% right now obviously in the employment picture is still in a very bad.
It anything that the Fed did today sand in your mind -- is that gonna help in employment picture -- Well certainly not directly I think by just making rates as low as possible trying to pump as much liquidity into the market as possible I think the the feeling is that let's try to do we did not do in the 1930s the -- What Japan did not do in the 1990s.
Let's try not to make those same mistakes.
Maybe we're gonna make new ones but still.
I believe the feeling is that the Fed is trying to cushion the blow that the economy will likely experience when the congress does not get together.
And avoid falling off for the fiscal cliff so it's building up and actresses before we -- of that window.
James Leventhal you know some -- had happened half a trillion we needed that -- thinking maybe 700 billion.
Now -- only maybe at most 350 billion -- is that not enough.
Well -- I'm sorry I interpreted it differently I've -- as open ended.
Which job by the way is leaving nothing in the bag frankly so what I think Ben Bernanke has done here is say.
What's in markets the economy -- giving you everything I've got now on exiting stage right let's focus on what the real problem is the real problem is the fiscal cliff.
There -- three months away from embarking over the edge so he's saying look stop focusing on me congress get your act together.
Let me -- -- all of his reaction to that they're you know all have something different Stephen your opinion I mean is this kind of a new.
Decision we're getting from the Fed at a new plant from the Fed that we've been seen before.
I think the Fed on this time out was really trying -- given everything that it could him by making MBS purchase program open ended.
They've really done that it could be 300 billion dollars it can be 600 billion dollars it could be a trillion dollars it really -- Is up to that the Fed and Howard interprets how the economy is progressing as we go through next year.
Scott Martin did you expected to be open and the like -- I didn't quite pick up that angle there.
No I Dennis at surprise me and it almost is like Ben Bernanke called Mario Draghi last -- and they wish I say Mario says -- just go open ended go unlimited -- good.
I so look and it's again this whole global coordinated effort Dennis I think.
You know you're starting to see these guys step.
The same pace is now which is again good for equity markets good for asset prices but I agree with Peter I mean a long term consequences of this.
Could be dire because we don't have any real economic growth supporting it.
All right I wanna go to get some market reaction -- peddling his fell -- as well the cold to you first on this what I mean honestly we're saying kind of C solid the markets right now.
Vs our training with cross an unchanged mark several times now -- -- a little.
What is certain enemy here luggage you know the first thing that I think -- is -- we talking about long -- right now these markets is so short term reacting.
But we've seen a complete change in market -- over the last ten minutes.
We're now seeing the up volume easily outpacing down volume and I the -- arrows across the board whether it's retailers drugs banks.
These are certainly the short term reaction that you're getting from the accommodative that yes thing to note -- the -- appearing next to chat not barrel now pulling back some.
-- -- staying right here right now on the market suggests -- cheering up hill and they're buying it at all right I mean you know we're still up triple digit drop a hundred point.
There is big go film legacy -- market.
Don't don't plan to CME about why.
I don't know what we call will be up more than silver -- the Fed -- now got an open ended commitment to -- 85 billion new dollars every month.
It seemed like.
Cyclone that silver had a tendency to lead again that the Forman -- -- -- -- -- five silvers and one gold and that seems to be the mentality.
When you get this surge in the markets.
Why we're seeing all that volatility.
What the Fed -- isn't limited 380 isn't open ended we don't know the one thing I don't know what thirty -- To bond vigilante -- good morning informative -- have you got in and now this might not.
Have a regular schedule like previous believe they may hit the market at any time and get well so that's another thing you gotta be very careful walk.
We have to find out more when they -- This speaks it and how they're getting implemented and what the limits are if there's absolutely no limit the gold and silver sent me a lot higher than it yeah.
Take a minute Peter given the bond market Peter pulled -- of coming you I don't have a lot of time with -- -- listen and that's.
Forty million dollars per month.
-- -- -- I mean this is this is and then we had never seen before and they're talking about the bond market for the -- what's your reaction and a.
-- what the Q the bonds are getting clobbered look -- -- having QE3 is a failure.
Before -- even launched.
You know the Fed is all in and they don't care they're selling bonds they're selling the dollar this is a vote of no confidence in the Fed the only job we're gonna create is for prospectors looking -- -- Because that's what everybody America's gonna have to all of because no one's gonna want to own dollars and no one's gonna wanna own treasuries or any bonds denominated in dollars because the Fed is gonna destroy the currency it's not gonna revive the economy but it will destroy the currency which we'll destroy the economy in -- process.
Sam Stovall people say QE1 QE2 didn't work well QE3 work.
Well I think that it's -- Off to a pretty good start with the equity markets but it's questionable with a bond market I think -- Peter brought out that maybe what the expectation is we could see an increase.
In inflationary expectations and that's possibly -- bond prices are coming down and that as a result I think investors are gonna say -- I'm gonna pull my money out of bonds where my got to look for about better alternative and that could actually end up supporting equity prices in the near term.
All right thank you very much to our entire all star panel -- I did a great job we appreciate your time.
And your insights we -- -- And so all Scott -- -- -- off the -- and Peter -- Nicole Kelly's guys thanks to all of -- we really really.