Wednesday, June 20, 2012

Federal Reserve: "Let's Twist Again: Goldman's Take"

Following up on this morning's "What will the Fed Do?-- Analysts Weigh In".
From ZeroHedge:
Goldman, which as recently as Monday night was pushing what clients it has left into believing the Fed may launch something as gargantuan as a $50-75 billion Flow-based QE program, has already come out with its take of today's action. For informative purposes, here it is.
From Jan Hatzius
BOTTOM LINE: Fed extends twist operation through year end; no change to “late 2014” funds rate guidance. Statement suggests downgrade to GDP and unemployment rate outlook.

1.    The FOMC announced today that it will continue its Maturity Extension Program (MEP)—better known as the “twist”—through the end of the year. The operation will include sales and purchases of Treasury securities totaling $267bn, according to a statement from the New York Fed. The maturity composition of purchases will match the first phase of the MEP. The Fed will sell securities with remaining maturity of “approximately 3 years or less”; the statement from the New York Fed said that once the program is complete, the Fed will hold almost no securities maturating through January 2016 (thus the Fed effectively extended the window over which sales could occur). It will continue to reinvest MBS paydowns into the mortgage market. 
2.    The FOMC downgraded its views on the economy in its post-meeting statement. Although activity is still “expanding moderately”, they removed the phrase “labor market conditions have improved”. The statement also noted a downshift in consumption growth and the decline in headline inflation....MORE