Markets are bouncing further on the hopes that Greece is getting closer to getting the participation rate that they hope in the debt exchange but also due to the story from the Fed’s leak source, Jon Hilsenrath of the WSJ. The story is laying out the different things the Fed will discuss next week to continue to keep their giant boots on the yield curve, aka keeping long rates as low as possible. We know they can embark on more QE but that will spark more inflation worries or with them just a few months from finishing Operation Twist they can always do more but risk running too low on short term bills to sell so today’s article talks about Plan C. This possibility would entail printing even more money to buy longer term Treasuries and/or MBS but then immediately sterilizing it by having a reverse repo to send the proceeds of the asset purchases right back to the Fed. The mad scientists at the Fed are contemplating every single possible scenario to keep longer term interest rates from moving higher. Thus, since inflation is and will remain sticky, longer term REAL interest rates will remain lower for longer if the Fed has its way.
