CIO Vantage Point;
Economic Outlook
December 12, 2012 Posted by:
Joe Morgan, CFA
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Hey Mickey!
You've been around all night
And that's a little long
You think you've got the right
But I think you've got it wrong
- Toni Basil
This week, the Fed made two significant announcements - one expected, one not.
Widely expected was the announced plan to continue purchasing $45 billion of Treasuries per month with the continuing goal of boosting the economy. This replaces "Operation Twist" which included Fed sales of short treasuries by the same amount. Because the Fed is out of short Treasuries, they are simply continuing the purchase side of Operation Twist, ramping up expansion of the balance sheet.
In the "somewhat telegraphed, but gee we didn't think they'd do it yet" category, the Fed also announced employment and inflation parameters that would make them change their current zero target rate stance. Specifically, an unemployment above 6.5 percent or inflation below 2.5 percent would lead them to continue holding rates steady at zero - where we've been for four years.
These announcements are significant in that they are new activities for the Fed, but do not seem significant with regard to promoting economic recovery going forward.
The Fed continuing to expand monetary policy action when our problems lie in the fiscal and legislative worlds is like asking your painter to add a new coat to address cracks in the foundation. The paint looks fine. Isn't it time for him to leave?
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
SVB Asset Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other obligations of Silicon Valley Bank, and may lose value.
E-mail This
The following excerpt will be included in your message.
Is the Fed Overstaying Its Welcome?December 12, 2012 Posted by: Joe Morgan, CFAThe views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.
Hey Mickey!
You've been around all night
And that's a little long
You think you've got the right
But I think you've got it wrong
- Toni Basil
This week, the Fed made two significant announcements - one expected, one not.
Widely expected was the announced plan to continue purchasing $45 billion of Treasuries per month with the continuing goal of boosting the economy. This replaces "Operation Twist" which included Fed sales of short treasuries by the same amount. Because the Fed is out of short Treasuries, they are simply continuing the purchase side of Operation Twist, ramping up expansion of the balance sheet.
In the "somewhat telegraphed, but gee we didn't think they'd do it yet" category, the Fed also announced employment and inflation parameters that would make them change their current zero target rate stance. Specifically, an unemployment above 6.5 percent or inflation below 2.5 percent would lead them to continue holding rates steady at zero - where we've been for four years.
These announcements are significant in that they are new activities for the Fed, but do not seem significant with regard to promoting economic recovery going forward.
The Fed continuing to expand monetary policy action when our problems lie in the fiscal and legislative worlds is like asking your painter to add a new coat to address cracks in the foundation. The paint looks fine. Isn't it time for him to leave?
Read More