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RBS Securities Managing Director Michelle Girard on the Federal Reserve’s latest action’s impact on the economic outlook.
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The Fed announced a new round of bond buying today but but -- not ramping it up that's what.
Right -- -- see that we are not ramping up the stimulus but they had stolen Aston and bond buying plan widely expected but their -- few surprises as well.
Are those surprises good for the economy RBS securities managing director and senior economist Michelle sure our.
In the hot seat -- Michelle and and let's let's separate.
The markets and the economy right now let's talk about the economy because the market certainly popped on the news and then fell.
A later when they had enough time to listen to what he was saying and think about it but nonetheless it is anything that you heard today good for the economy.
Well isn't gonna help the economy I don't sell I think we all recognize the problem is not that there is an and that you know -- -- dollars sloshing around the system that.
Interest rates are low enough.
Out is -- that that -- been taking action to provide support for the economy they've been doing so for years.
The economy hasn't got a lot -- this is not a monetary problem.
And so unfortunately I just don't expect that at this round of bond buying is that I had any more impact than the last two brands of cat.
Okay but he specifically.
Said when he announced the 85 billion per month in open ended purchases some mortgage backed securities which we've seen -- -- treasuries.
He specifically said my number one focus right now is shoring up the job market how could not poppy good for the economy.
Well it would be if in fact this action works to help businesses feel more confident about hiring but.
That's the problem is it's not going to necessarily help.
The labor market companies are sitting on cash they had you know they have strong balance sheets -- -- well positioned both spending and -- But they're not doing cell and it isn't because monetary policy isn't providing enough support it simply because -- -- uncertain about the outlook -- -- with the regulatory could you know without seeing this regulatory regulations the worried about higher taxes that worry about health care costs.
They're worried about going over the fiscal -- no money is going to be higher reading.
In this environment and so even though the Fed is doing what they they -- let's face it it isn't going to translate into more jobs until the fiscal uncertainty gets from.
Let's talk about the two big surprises number one -- Ben Bernanke said they will now tie any future fed fund rate moves and that's the rate the overnight rate at which banks lend to each other to -- point on the unemployment.
Chart and that is six point 5%.
We're well above 77%.
So right now it's gonna take -- while he basically said around midway 2015 that's the first surprise that's -- they've never done that.
Right I mean you know they replace it providing that they have been providing us guide to -- that rates are probably gonna stay low as you -- -- -- -- mid 2015.
Not -- try to be even more clear that we're not gonna be raising interest rates as long as the unemployment rate.
Is above six and half percent -- -- I have 'cause you don't know what happens.
When it hit six point 5% but it's very much in part I'm not saying it it will be but what if it's in part due to less than exciting participation in the -- -- -- in Bernanke addressed that action is press conference you know he cited none of these triggers these.
On numerical thresholds that they've put out there today RR I'd absolute trigger he said hey.
If we get below six and a half percent but inflation is still well -- inflation expectations -- still steady.
-- -- think that raising rates what's the inappropriate and very clear that the Fed still a lot of wiggle room at the very least you don't have to worry about us thinking about.
Raising interest rates until we get through -- of those.
Markers what was the second biggest surprise for you because this one I've heard on different levels from different people.
On -- buying than this to some extent that the shift in the threshold of the buying.
It was a little bit of a surprise -- an odd is that is that you're referring to because Malia for most market participants I don't know it might not -- like all that.
Big -- it's a little bit of inside baseball if you will but they did -- shorten up.
The maturity of the treasuries that they're buying only marginally.
It's a long end of the market did either because they're they're buying the longer -- at this they had been providing a lot of support for a long term treasuries went out on the out the current thirty year maturities.
On them really are just about the only buyers -- that's Hector anymore.
And and that that the Fed is -- -- be buying a small amount less but the fact that they backed away at all.
To some extent on and settled that market and sell and -- the long end of the market we actually did see a little upward pressure on you talking thirties -- just corporates at that -- -- -- it's it's mostly -- you know from most of the of the market corporate bonds mortgage securities.
What really matters is the five and the ten year part of -- those maturities and that's actually what the Fed is kind of shifted more their purchases to.
An urgent help to bring down mortgage rates that was some of their focus all right well the markets didn't didn't like it once they've they've digested some of that they let realize Lennon met if not letting it go at anytime -- -- again Michelle and our yes managing director and senior economist Michelle Girard did that he's.
