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Cumberland Advisors CIO David Kotok and AEI visiting scholar John Makin on the Fed's potential impact on the economy and financial markets.
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-- -- All right by an eleven to one vote -- -- I believe was that the descendants are venture -- a lone eagle -- Carey that that's his rock.
Yeah among his fed colleagues -- the Federal Reserve has decided to launch a new bond buying program the federal by forty billion dollars -- of agency mortgage backed securities.
Each month starting on Friday they're gonna continue the Operation Twist and it pushed out the for guidance another you're keeping rates.
At historic lows through 2015 -- was -- the right move what does it mean for our economy joining -- to weigh in our panel this afternoon David -- top chief investment officer.
Cumberland advisors and John making visiting scholar at eight.
US Treasury Department gentlemen thank you for joining us.
Even begin with you what do you make of this aggressive move by the Federal Reserve Chairman this afternoon.
Well it -- fulfilled the best expectations.
Of the financial markets.
Clearly there's a celebration underway addiction is a marvelous thing.
And we certainly have -- in financial markets McCain as to how much it does for the economy that's a whole separate question I don't think -- -- very much.
Didn't need to committee cut you -- but just in terms of the message of the markets were showing the Dow it's spiking.
Not a lot of change in -- and not want to change in the dollar gold is really -- treasuries are selling off and I thought that was interesting as well also.
If you could expand a little bit on the market reaction.
Well you've got a stock market rally that's a long duration instrument.
The Fed said they're gonna go into the market by long duration and take it out of the market stocks should be expected to pop.
We have a different story.
And we'll play it out in the currency and may be in the bond market which may react to a weaker dollar we have to see that wouldn't.
Too soon to judge now.
John I I think -- can explain what's going on in treasuries by the fact that they're focusing on mortgage backed securities.
You what does that tell you -- the average person out there the Fed is gonna stay active in mortgage backed securities.
Does -- eighty you that there are still very worried about the housing market they feel like they have to support it what do you think.
Well I think what the Fed said was the key sentence in their statement was to say that.
They are worried about housing implicitly and explicitly they say.
-- less the employment picture improves substantially that word again they would extend their efforts to buy mortgage backed securities so they kind of put an open ended commitment out there that's tied to.
The level of employment which is a pretty aggressive move by area a Central Bank.
Consistent with chairman Bernanke's remarks at Jackson Hole and I think that's underscoring.
How determined the Fed is here.
To remain accommodative until -- get some movement in the real economy.
I agree that David did it's it's the real economy -- isn't guaranteed -- right now the impact on -- financial markets is on ambiguous.
So -- do you expect John interest rates to come down here.
You -- on the back of this discussion about the Fed trying to bail out that the housing market as well to focus on mortgage backs not the first time.
You know this is where bikinis -- didn't in the past and it you know my reaction was I was surprised at that rates would would fall.
You know first but are you looking for -- more like longer term reaction in the treasuries market.
Well I'm I'm a little bit concerned lot of things I was worried about is that what and what the Fed doesn't want to see here is a sell off in the long into the treasury market this that's been underway for awhile and actually -- -- long term treasury rates go up a bit.
And after this announcement.
And that that continues -- it.
The market may be beginning to wonder if this commitment to reduce the unemployment rate isn't potentially a little bit inflationary.
So today that could.
Could be the one.
Problem here with the Fed's aggressive and more.
Before we go real quick John is there anything that the Fed can do about employment and we we bring it back to that because that's what they said -- they want to keep these rates low.
Until -- improves is there anything they can do about that.
Well I I think when asked they have to hope that by a pushing up financial assets getting people take more risk by more financial assets increase the wealth effect.
Increased spending and thereby increase employment.
That they'll get some positive effect.
The results so far haven't been overwhelming and it's is that the jury still out on that there.
And the fact that they're they're saying if we don't get a substantial improvement in the labor market will do more right I think is what may be making the bond market little bit nervous.
David last points last question to you quickly is the Federal Reserve Chairman sending a message to congress it was very stern in his comments and Jackson hold up.
I've done everything I can do -- boy he sure did that today with monetary policy being so aggressive the nuclear option is still.
-- put it -- -- what is the message to Washington here.
Well though the message that Washington is wake up this but the fact is it doesn't look like they will I agree with -- assessment on the economy -- and -- -- others worked.
I respect his -- greatly now we're in trouble.
The Fed shot all the bullets what happens when nothing happens and we could see that evolving quickly secondly we got financial rip action.
We drop yields we hurt savers.
And that's beginning to take hold that slows the economy savers raise there's.
Savings instead of spending it's counterproductive for the -- Gentlemen thank you so much for your analysis we we really appreciate you coming on with us today data Kotaku dot Macon.
-- attack in the US.
