From RGE Monitor:
Fed Interest Rate Path: Rates Unchanged, MBS Purchases to Slow
The Federal Open Market Committee (FOMC) decided at its September 2009 meeting to keep the Federal Funds Rate target range unchanged at 0% -0.25%. While noting that "economic activity has picked up following its severe downturn", the FOMC stated that economic conditions are likely to warrant "exceptionally low levels of the federal funds rate for an extended period". The Fed will slow the US$1.25 trillion purchases of mortgage backed securities and US$200 billion purchases of agency debt but will extend the purchases until Q1 2010. The ongoing US$300 billion purchases of Treasuries will be completed by the end of October 2009. Contrary to market expectations, many believe the Fed is unlikely to begin rate normalization until 2010 or 2011 due to the negative output gap and stubbornly tight credit.
Comments:
With the appearance of an extended period of "rate normalization" it appears that the Fed is trying the "orderly US dollar decline" approach in an attempt to find its way out of the economic crisis. As many of us know, there are huge numbers of mortgage resets coming in 2010 and super low interest rates are key to reducing the numbers of homeowner walk-aways. This attempt to stop the slide of real estate prices is key to the Fed led recovery.
In my view, the attempt will ultimately fail, but that is a topic for another day.
The key message that the Fed is sending the market is that they will tolerate a further, orderly decline in the US dollar below the key level of 76 .
The next major support level is around 72 on the US dollar index. The ultimate low is about 70.7. If we breach the ultimate low, then we need to fasten our seat belts and put on our crash helmets, for the danger of a disorderly dollar collapse continues to grow with every major support level broken.
With this development, I increasingly like physical gold and gold stocks.
Fed Interest Rate Path: Rates Unchanged, MBS Purchases to Slow
The Federal Open Market Committee (FOMC) decided at its September 2009 meeting to keep the Federal Funds Rate target range unchanged at 0% -0.25%. While noting that "economic activity has picked up following its severe downturn", the FOMC stated that economic conditions are likely to warrant "exceptionally low levels of the federal funds rate for an extended period". The Fed will slow the US$1.25 trillion purchases of mortgage backed securities and US$200 billion purchases of agency debt but will extend the purchases until Q1 2010. The ongoing US$300 billion purchases of Treasuries will be completed by the end of October 2009. Contrary to market expectations, many believe the Fed is unlikely to begin rate normalization until 2010 or 2011 due to the negative output gap and stubbornly tight credit.
Comments:
With the appearance of an extended period of "rate normalization" it appears that the Fed is trying the "orderly US dollar decline" approach in an attempt to find its way out of the economic crisis. As many of us know, there are huge numbers of mortgage resets coming in 2010 and super low interest rates are key to reducing the numbers of homeowner walk-aways. This attempt to stop the slide of real estate prices is key to the Fed led recovery.
In my view, the attempt will ultimately fail, but that is a topic for another day.
The key message that the Fed is sending the market is that they will tolerate a further, orderly decline in the US dollar below the key level of 76 .
The next major support level is around 72 on the US dollar index. The ultimate low is about 70.7. If we breach the ultimate low, then we need to fasten our seat belts and put on our crash helmets, for the danger of a disorderly dollar collapse continues to grow with every major support level broken.
With this development, I increasingly like physical gold and gold stocks.
Comments
Post a Comment