Federal Reserve Not Likely to Change Rates But Might Offer Longer-Term Hints

[donsutherland1]

On Wednesday afternoon (11/4/2009), the Federal Open Market Committee (FOMC) will release its next monetary policy statement. Given recent economic data, the FOMC should note a stabilization and return to modest economic growth that is underway. It should also confirm that the Fed has ended its $300 billion purchase of Treasury securities. It may offer a firmer hint that its purchases of agency mortgage-backed securities and agency debt will be slowed further prior to the scheduled end of the program in Spring 2010.

Barring a renewed economic decline precipitated by an internal or external shock, numerous central banks will likely be winding down their emergency programs next year. Aside from questions concerning the sustainability of the emergent economic recovery, particularly the consumer spending element, answers to the following questions could be revealed as the central banks gradually but steadily withdraw their monetary stimulus, even as interest rates remain abnormally low through much of next year:

1. To what extent have the huge rallies in equities and commodities been liquidity-driven?

2. To what extent has stabilization in the residential real estate sector been driven by liquidity and special tax treatment?

3. Will a withdrawal of government assistance to the real estate market amplify the headwinds affecting commercial real estate, leading to a new shockwave that could batter the nation's weakened financial system?

4. Did excessive liquidity lead to the formation of echo bubbles (smaller bubbles that recur in reflated sectors where a preceding bubble had burst) in stocks and perhaps real estate that will burst as the stimulus is withdrawn?

 

[winston53660]

I would like to see interest rates rise.

 

[Telecaster]

Before long the Fed may not be doing much of anything. Dodd seeks to put all of banking under the President;
Dodd Proposes Removing Fed, FDIC Bank Oversight Power (Update2) - Bloomberg.com

“Our proposal will replace the myriad government agencies that failed to rein in risky schemes with a single, accountable federal banking regulator,” the Connecticut Democrat said at a news conference.

The U.S. bank regulation system may have led to lax oversight by encouraging a “race to the bottom” by agencies to win oversight of banks and thrifts, Dodd has said. His measure goes further than proposals by President Barack Obama and House Financial Services Committee Chairman Barney Frank to merge the OTS and OCC as part of efforts to prevent recurrence of the worst economic crisis since the Great Depression.
...
The new banking regulator would be led by an independent chairman appointed by the president and a board including leaders of the Fed, the FDIC and two other independent members. It would be funded primarily by assessments on the industry.

The changes would let the FDIC focus on its roles as deposit insurer and resolver of failed firms, while the Fed would focus on monetary policy “without being distracted by responsibilities for bank oversight and consumer protections,” according to the summary.
(cont)

 

[Kushinator]

Before long the Fed may not be doing much of anything. Dodd seeks to put all of banking under the President;
Dodd Proposes Removing Fed, FDIC Bank Oversight Power (Update2) - Bloomberg.com

From your article:

while the Fed would focus on monetary policy

Not much of anything huh?

 

[Telecaster]

From your article:

Not much of anything huh?

Notice I said, "before long". What is being suggested today can always be revised further down the road. And then revised beyond that.