You’ve heard of Pestowire and Kleinmanwire.
Well, our US cousins have a similar service. Edited by the Wall Street Journal’s Jon Hilsenrath, it’s called Fedwire and it brings you all the news, views and gossip from the world’s most powerful central bank.
Here are selected highlights from a piece filed on Fedwire overnight. And it’s very interesting because it spells out how the Fed intends to introduce QE2.
The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.
Unlike in March 2009, when the Fed laid out a program to buy $1.75 trillion worth of Treasury and mortgage bonds over six to nine months, officials this time want flexibility as they assess if the program is working.
Mr. Bernanke has used the analogy of a golfer with a new putter: Unsure how it will work, he finds best strategy is to tap lightly at first and keep tapping until the golfer figures out how best to use the putter.
The Fed could leave open the possibility of more purchases in the future, particularly if inflation is projected to remain below 2% and the unemployment outlook remains high, which is currently the expectation of many officials. Or it could halt the program if the economy or inflation surprisingly take off, officials have said.
So there you have it.
A few hundred billion dollars spread over a couple of months and the possibility of some more if unemployment remains around 9.6 per cent and inflation remains below the Fed’s informal objective of about 2 per cent.
The question now, of course, is what the market makes of Hilsenrath’s ‘exclusive’. Clearly this isn’t the big bazooka many investors were expecting but the report it is likely to be taken seriously because of Fedwire’s excellent track record.
Indeed, the dollar has strengthened against several major currencies on Wednesday morning:
That said, this could all be an elaborate head fake from the Fed to get more bang for the buck when it does announce QE2. Rein in expectations and then hit the market with a bigger-than-expected purchase. Or is that just too conspiratorial? Surely the Fed would not attempt to massage expectations in this way, would it?
Related link:
Scope of Fed’s QE2 comes under scrutiny – FT
The US Treasury market is not enough – FT Alphaville