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Author: OrmontUS Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 449212  
Subject: Fed raises debt limit Date: 12/12/2012 1:45 PM
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Its own, that is:

http://stream.marketwatch.com/story/live-coverage-of-the-fed...

WASHINGTON (MarketWatch) — The Federal Reserve announced a new bond-buying program Wednesday in fresh action to keep the recovery going in the languishing jobs market and, in a surprise, set thresholds on unemployment and inflation to guide the market about when it will eventually hike rates.

The new purchases of $45 billion of Treasurys are designed to keep the total pace of its asset purchases at $85 billion a month. Without the action, the Fed purchases would have been reduced at year-end when an existing program to swap short-term debt for longer-term Treasurys is set to expire. The Fed said it would keep the $45 billion pace “initially,” suggesting it may review the size of the purchases.

In a surprise, the Fed adopted thresholds on unemployment and inflation to guide the market on when it plans to hike the fed funds rate.

The Fed said it would hold rates close to zero while the unemployment rate is above 6.5% as long as inflation does not rise above 2.5%.

Longer-term inflation expectations must be well-anchored, the Fed said.

The point of thresholds is to give market participants a better idea of when the Fed will plan to exit.

The Fed had previously said it expected to keep its rates low until mid-2015.

end expiration of Bush-era tax cuts and draconian spending cuts could send the U.S. “toppling back into recession,” Fed Chief Ben Bernanke said last month.

He also urged Congress to raise the federal debt limit.

Bernanke said that the economy would have a “very good year” if a budget deal could be reached.

Jeff
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Author: PosFCF Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 411129 of 449212
Subject: Re: Fed raises debt limit Date: 12/12/2012 2:32 PM
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I think the Fed may have opened the door to considering more than the unemployment rate by saying the following:

"... In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments....."
http://www.federalreserve.gov/newsevents/press/monetary/2012...

Labor participation rate has been fairly widely used as a counter to the drop in unemployment rate being as significant as the number would normally be considered. The above bolded part has me wondering whether the FOMC isn't setting the stage for that metric to be used even if the nominal rate drops to their target of 6.5%.

Poz

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 411132 of 449212
Subject: Re: Fed raises debt limit Date: 12/12/2012 2:53 PM
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Hi Jeff,

The Fed said it would hold rates close to zero while the unemployment rate is above 6.5%
As defined & calculated by which formula, I wonder...

as long as inflation does not rise above 2.5%.
As defined & calculated by which formula, I wonder...

He also urged Congress to raise the federal debt limit.
Hmmm... the sole loan officer of the global bank selling variable-rate loans at artificially depressed lows on generation-length terms, with full personal borrower recourse and no offsetting collateral yields (rent revenues) to cover the debt payments...
is urging his captive marks to agree to borrow more....
back up the truck & load it up so it is inescapable as eventually rates rise...
THAT makes sense!

<Snicker>

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Author: FastMike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 411139 of 449212
Subject: Re: Fed raises debt limit Date: 12/12/2012 5:27 PM
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"...The new purchases of $45 billion of Treasurys are designed to keep the total pace of its asset purchases at $85 billion a month..."

Dear Jeff :

Wasn't the bond market reaction rather odd? Treasury yields increased, i.e., Treasuries sold off! One would think that bond yields would have decreased as buyers tried to buy as low as possible.

Could it have had something to do with the program starting in January, 2013, i.e., a new tax year?

Now the quotes that we see on Treasury yields are a composite of secondary market sources. Refer to the explaination below the quotes :

http://www.treasury.gov/resource-center/data-chart-center/in...

Or could it have something to do with the increase in the volatility in bond trading? Are Treasuries now subject to the rule of 'buy on the rumor, sell on the news'?

Your puzzled Fool,
FM

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Author: notehound Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 411144 of 449212
Subject: Re: Fed raises debt limit Date: 12/12/2012 6:52 PM
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Wasn't the bond market reaction rather odd? Treasury yields increased...

The Treasury bond market was hoping the Fed would pledge the whole $85 Billion/month to buy just government paper. They must have been disappointed that almost half of the market manipulation will be directed to mortgages.

;-)

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Author: matson15 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 411252 of 449212
Subject: Re: Fed raises debt limit Date: 12/13/2012 9:14 PM
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“Wasn't the bond market reaction rather odd?”

Gold market also seemed counter intuitive also to this observer; but, probably the pre-monition was already baked in.

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