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发帖数: 29846 | 1 Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates
Published: Thursday, 13 Sep 2012 | 3:35 PM ET
The Federal Reserve fulfilled expectations of more stimulus for the
faltering economy, taking aim now at driving down mortgage rates until an
improvement in unemployment that the central bank says will be a problem for
several years.
The Fed said it will buy $40 billion of mortgage-backed securities per month
in an attempt to foster a nascent recovery in the real estate market.
The purchases will be open-ended, meaning that they will continue until the
Fed is satisfied that economic conditions, primarily in unemployment,
improve.
"There's strong hints that they'll do Treasurys next," Joe LaVorgna, chief
economist at Deutsche Bank Advisors, said in a phone interview from London.
"They're pulling out all the stops to try to get this economy to gain some
traction and, most important, to get unemployment down."
The stock market, which had been slightly positive prior to the decision,
shortly after 12:30 p.m., surged while bond yields, particularly farther out
on the curve, jumped higher. Gold and other metals gained at least 1
percent across the board while the dollar slid against most global
currencies.
Enacting the third leg of quantitative easing, or QE3, will take the Fed's
money creation past the $3 trillion level since it began the process in 2008.
"The Committee is concerned that, without further policy accommodation,
economic growth might not be strong enough to generate sustained improvement
in labor market conditions," the Open Market Committee said in a statement.
As a follow-up to the statement, the Fed released its latest economic
projections, which foresee slow growth including a jobless rate that stays
above 7 percent into 2014. The economic projections expect growth to remain
slow but to improve due to the stimulate measures announced Thursday.
In addition, the Fed said it will continue its program of selling shorter-
dated government debt and buying longer-term securities, a mechanism known
as Operation Twist. It also will continue its policy of reinvesting
principal payments from agency debt and mortgage-backed securities back into
mortgages.
The Fed left its funds rate unchanged at near-zero but offered one change in
that regard, saying the rate would stay at "exceptionally low levels" until
at least mid-2015.
"These actions, which together will increase the Committee’s holdings of
longer-term securities by about $85 billion each month through the end of
the year, should put downward pressure on longer-term interest rates,
support mortgage markets, and help to make broader financial conditions more
accommodative," the Fed statement said.
The vote was 11-1, with Jeffrey Lacker voting against the notion of asset
purchases as well as setting a time frame for rates.
At an afternoon news conference, Fed Chairman Ben Bernanke offered a defense
of the Fed's QE activities, saying they are not adding to the government
budget deficit nor causing runaway inflation.
In addition, he addressed concerns that savers are being penalized from low
interest rates, saying that the policy has allowed for growth in other areas.
"While low interest rates impose some costs, Americans will ultimately
benefit most from the healthy and growing economy that low interest rates
promote," he said.
Bernanke also issued his latest challenge to Washington to get serious about
fiscal policy.
"We can't solve this problem by ourselves," he said.
But Fed critics contended that QE3 will not succeed where its two
predecessors failed.
"By doing QE3, he has admitted that QE1 and QE2 have not been beneficial.
Otherwise, there would be no need for QE3," said Michael Pento, president of
Pento Portfolio Strategies. "If the unemployment rates stays elevated and
inflation exceeds his 2 percent target, what is his next move?"
With a summertime rally pinned on hopes for aggressive central bank
intervention — both in the U.S. and Europe — the Fed essentially split the
difference, offering a quantitative easing program the aggressiveness of
which will depend on the strength of the recovery.
"The language of its policy stimulus leaves us in little doubt that the
central bank is trying hard to allay fears over the prospects for inflation,
which it continues to see as a low likelihood, as well as its exit strategy
," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New
York. "The Fed is going all out to say that easy money is here for a very
long time. Will markets warm to its latest actions? We think so."
Doug Roberts, chief investment strategist at Channel Capital Research, said
small-cap stocks, technology shares and precious metals probably will be the
chief beneficiaries of QE3.
"What QE3 does is inject liquidity," he said. "Right now what you do is
follow the Fed."
Though the Fed is ostensibly politically independent, the decision comes at
a ticklish time with the presidential election less than two months away.
Washington conservatives have been critical of the central bank's money
creation, which has caused its balance sheet to swell to $2.8 trillion. They
worry that the growing money supply will lead to inflation, which has
reared its head in food and energy prices but has remained tame through the
broader economy.
Bill Gross, who runs bond giant Pimco, said the new round of easing would
take the Fed's balance sheet up to nearly $3.5 trillion if the purchases
continue for a year.
"That potentially is reflationary," he told CNBC. "We're just to have to see
if it works."
Faced with an unemployment rate stubbornly above 8 percent and other
indicators showing only halting signs of recovery, the Fed was pressed into
action by a market worried that the nascent recovery was on wobbly ground
and needed more stimulus.
Two previous rounds of QE had uneven effects on economic growth though they
did manage to levitate stock prices by more than 100 percent from their
March 2009 lows. |
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