Passing the Baton, by Tim Duy: The Federal Reserve will offer up the results of its two day meeting this afternoon. It is hard to find much to argue with Rebecca Wilder’s conclusion that not much has changed in the past six weeks, and hence we should expect little from today’s statement. CR opines on the possibility that Bernanke & Co. might update us on their evaluation of the potential benefit of purchasing longer dated Treasuries. Economists at Merrill Lynch suggested earlier this week the Fed may be forced to pursue that option sooner rather than later if yields keep rising (although some think that bonds are about to make a technical turn in direction anyway).
It seems, however, that outright purchases of Treasuries to hold rates lower would shift the Fed’s attention from the asset side of the balance sheet to the liabilities side, which would put them in the realm of their definition of quantitative easing. It doesn’t seem like they are quite ready to go there; just six weeks ago they made an effort to differentiate between their policy and Japanese style quantitative easing. Seems too quick for a reversal given the relative calm of credit markets since the December meeting. Given the lack of Fed preconditioning to expect a significant policy shift, today’s statement is not expected to move markets, and will be carefully dissected to see how, if any, the Fed’s view of the economy or credit markets have changed.
So what now is the ultimate intention of policymakers? What do they hope to accomplish?
Originally published at the Economist’s View reproduced here with the author’s permission.