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Fed May Buy More Assets To Bolster Balance Sheet

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The Federal Reserve may step up asset purchases to prevent its balance sheet from contracting until policy makers are convinced an economic recovery has taken hold, Fed officials and analysts said.

Demand for some of the Fed’s emergency programs has waned as the grip of the credit crunch loosens, with loans to banks shrinking 38 percent since Jan. 1. The main tool to keep the central bank’s holdings from falling from the current $2.1 trillion would be more purchases of Treasuries, said analysts including former Fed Governor Laurence Meyer.

Until now, policy makers’ balance-sheet decisions have been driven by the emergency liquidity needs of banks, bond dealers, money markets and failing financial institutions. U.S. central bankers are now transitioning to a period where economic data and their implications for forecasts will play the key role.

“You wouldn’t want policy to reverse course dramatically or ramp up dramatically unless the outlook changed substantially,” John Weinberg, research director at the Federal Reserve Bank of Richmond, said in an interview. “It really hasn’t yet.”

Fed officials have said their Treasuries buying isn’t designed to target any specific yield levels. Last week’s release of minutes of the April 28-29 Open Market Committee meeting showed some members were open to bigger purchases to spur a more rapid recovery.

Bonds slumped yesterday on concern surging debt sales will overwhelm the Fed’s strategy. The yield on the benchmark 10-year bond increased 19 basis points to 3.74 percent, the biggest increase since Jan. 19. It slipped 6 basis points today. A basis point is 0.01 percentage point.

Mortgage Bonds

On May 26, mortgage-bond yields exceeded for the first time their levels before the Fed announced it would expand purchases of the securities to drive down interest rates on home loans.

The Fed’s asset holdings have fluctuated around $1.8 trillion to $2.1 trillion this year. So far, the Fed has completed about $691 billion of the $1.75 trillion of purchases of Treasuries and housing debt it has committed to.

It’s difficult for Fed officials to predict how fast liquidity and loan programs will contract as markets normalize; adding to Treasuries buying would ensure growth in the balance sheet.

Funds extended to financial institutions, such as term credit to banks, discount-window loans, currency swaps with foreign central banks, and direct loans to bond dealers, fell to $701.8 billion May 20, down 38 percent from $1.13 trillion at the start of the year.

article continues at link but basically blah blah blah I have a printer and am going to use it....

May means "will" or "is already", in the US, right? :unsure:

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Guest มร หล&#3
The printing press is in good order, I see.

The inflationary consequences will be impossible to avoid.

Yes. All the while corrupt governments steal hard earned money from the thrifty and scrupulous, at the point of a gun, to pay for this criminality.

Add to that the likes of Goldman Sachs, in receipt of this 'money' will leverage a bubble in human needs, commodities, to off-set their losses in the burst housing bubble.

Civil disorder is a soft, touchy-feely way of describing the response.

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How else was the world going to find the $10T, yes


over the next 3 years??

70% or more of that will be printy printy.

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