Likely using Jon Hilsenrath at the WSJ as their mouthpiece, the WSJ is reporting: “Federal Reserve moving closer to action to spur growth”. “Bond buying, rate guidance, lower reserve rate among Fed options.” “Fed could make key decisions next week or in September.”
Category: Federal Reserve, MacroNotes, Think Tank
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
dumb question: why doesn’t the fed purchase sallie mae debt? (assuming that they will purchase fed/federally-insured debt, assuming QE3 happens)
ah. the wsj….yesterdays news, tomorrow. i subscribed for decades and then quit about 3 years ago. but they kept renewing my subscription even though the date on it made the credit card “expired”….somehow they, and Visa, just kept running it through for 2 more years………… what a crappy little rag its become.
I don’t think today’s market action was quite what they had in mind.
Rsinnott: “why doesn’t the fed purchase sallie mae debt?”
The reason is because QE is meant to engineer a wealth effect whereby people feel richer and in some cases are richer from the rise in risk assets to go out and spend the perceived or realized wealth.
How does buying Treasuries and MBS from Fannie/Freddie do this instead of buying debt from Sallie Mae:
1) Treasuries is considered the baseline “risk-free” asset whereby all other “risk” assets are measured against- hence if you drive down the yield to near zero, investors are “forced” to go into “risk” assets to earn a return- this drives stock markets and the corporate debt market higher and hence existing holders are more wealthy/feel more wealthy.
2) MBS purchases directly drive down the MBS rate and consumers are able to refinance their mortgages and the extra interest payment savings hopefully will be used to fuel consumption…… maybe….. hope is not a good strategy, but this is all the Fed’s got.
3) Sallie Mae debt affects the interest rate for competing private student loan debt and sadly students are broke and have limited job prospects- so the payout is much less than if the Fed were to do QE on the other two above.
Most likely the next QE3 will target more MBS- so go buy some to front run the Fed- it’s a winning strategy so far, until the music stops and this all has to be unwound….. oops.
I suppose “the Fed” was also behind the grassy knoll when Kennedy was shot?
“wealth effect” for whom? The timing of this report – a few minutes before the close – was such that only the pros could take advantage of the reversal.
The story was planted in the New York Times as well. Initially on the website, I think last night, and than as front page story today July 25th.
http://www.nytimes.com/2012/07/25/business/economy/fed-leaning-closer-to-new-stimulus.html?_r=1&ref=business