Accrued Interest was on the money ahead of the Federal Reserves dramatic action late on Thursday. Here’s a quick quick round up of other comment…
NakedCapitalism, Yves Smith:
While some deemed the Fed’s move today to expand its balance sheet by as much as a trillion dollars plus as “shock and awe”, I recalled that when that term was first used, at the beginning of the US invasion of Iraq. The notion was a display of superior force would lead to quick capitulation…And even if the Fed does win the yield battle, it may not win the war.
BreakingViews, Martin Hutchinson:
The US Federal Reserve is increasing its balance sheet by another $1 trillion, including $300bn of Treasury bonds, the Federal Open Market Committee said on Wednesday. Yet the pace of US economic decline seems to be slowing, while deflation is nowhere visible. Fed policy is now high-risk, and resurgent inflation may strike sooner than expected.
WSJ Real Time Economics, Greenlaw, Morgan Stanley:
The Fed’s announcement signals a clear intent to continue to drive mortgage rates lower and we expect them to meet this objective. … In 2008, the average mortgage rate on the outstanding stock of loans was about 6.50%. So, if the Fed brings 30-yr fixed rate mortgages down to 4.50% and all homeowners are able refi, the aggregate permanent cash flow savings would be on the order of $200 billion per year.
Infectious Greed, Paul Kedrosky:
Today’s Fed announcement – buying Treasuries, shades of Operation Twist — will teach those amateurs around the world how the big boys run down their own currency. The US plays the dollar depreciation game for keeps.
MarketBeat, David Geffen:
This was the Fed’s chance to shock the market, and it made good on that, picking the moment when investors thought the rally might finally start to run out of gas to announce a purchase of $300bn in Treasurys…It’s hard not to see the [$300bn] payment – along with the additional steps announced by the Fed to expand the Term Asset Lending Facility to include certain securities held by banks that are out of style these days – as a down payment on Tim Geithner’s head.
FT, Short View’s John Authers:
The Federal Reserve is on a war footing and is using the Powell doctrine – only go to war as a last resort, and do so with overwhelming force. It also had the element of surprise. So why did the Fed do it? The theories are out there. With insurer AIG’s bonus pay-outs fuelling a backlash against bail-outs, this may be the only way to pump more public money into credit. Or, perhaps, the Fed may know something about the banking system that others do not.