Tuesday August 10, 2010 - 17:19:25 GMT
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FOMC Decision Goes 180...Smells Fishy (FXA)
FOMC Decision Goes 180...Smells Fishy
I canâ€™t help but think that Bernanke got cold feet on pulling the trigger on reinvesting MBS proceeds into US Tsys (about $200bln through 2011 though could be more if there are more prepayments). Currently all the proceeds from maturing US Tsys Fed bought (a much smaller amount of $300bln vs $1.25bln in GSE MBS and GSE debt).
Why do I sense change? Because the markets have moved so much in front of the news â€“ something that one would expect only if there was a strong message delivered to markets from senior Fed officialsâ€¦like to bank economists, buy side biggies and independent strategists (Larry Meyer comes to mind). How else can you explain the massive repricing of risk today (rather last minute) to the FOMC news at 1815/1415 today? Something smells fishy.
Indeed I have no reason to think Meyer was told anything by any Fed official but I could not help but notice how certain he was today on CNBC that the Fed will do nothing on policy and only acknowledge a softening in the assessment of the economy. Indeed he said anyone calling for the Fed to announce any policy change, even the modest reinvestment program, is â€ścrazy.â€ť To see his CNBC performance and the more balanced one from Randy Kroszner click here Meyer and Kroszner on FOMC and watch it all the way through.
And compare Meyer with his New York Times quote from July 29, the day after (presumably Meyer was quoted the day of when Bullard article first appeared) on the significance of the deflation worry the St Louis Fed President outlined for everyone (included conference call with Fed press types and the next day h spent 2 hours on the CNBC set explaining himself). Meyer said about Mr. Bullardâ€™s new position: â€śThis is very significant. He has been one of the most hawkish members, but he is now calling for the Fed to ease aggressively.â€ť
Anyway I canâ€™t help but feel a little suspicious about the market move and apparent change in market sentiment all in a session. Some have even found CNBCâ€™s Liesman pushing back some on those calling for a symbolic QE2-lite step today, though frankly I have seen much of his remarks today and did not get this sense. Liesman did however blame Bernankeâ€™s ascribed role as mediator for generating so much confusion over what the Fed is going to announce today and that times demand leader not mediator when it comes to key policy meetings,
And this brings me full circle to the Hilsenrath article that ran a week ago Monday â€“ my assumption was and is that anything Hilsenrath writes that outlines policy options for the Fed including an important if symbolic one like reinvesting proceeds from maturing MBS is only in the WSJ because someone at the Board spoke to him and wanted to use the WSJ to address the market. Planting the idea of reinvestment (not allowing the balance sheet to contract) is as good as harvesting the decision in normal times. I grant you these are not normal times, but the absence of any broader pushback in the press since the article (Bernanke believes in using the press and not Washington so-called insiders) I think the reinvestment option is a goâ€¦call me crazy.
PS Whatever happens today the Fedâ€™s management of market expectations ahead of todayâ€™s meeting is a new low for the Bernanke Fed.
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