Wednesday, September 23, 2009

A signal from the Fed?

At first glance, there wasn't anything unexpected in the FOMC statement today. But reading more into the wording, the following difference in the language between this statement and the one from last month may have significance:

From the FOMC statement August 12:
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.

From the FOMC statement September 23:
In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.

Many Fed watchers have interpreted this as a signal that the Fed is planning to do something different. Some beleive it is related to the beginning of an end to the liquidity buildup. Yes, the rate will stay at zero, but it is likely that the remaining securities purchases will be "sterelized", meaning some won't be outright buys, but instead may be repo transactions . The Fed may not want significant additional quantitative easing.

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