Economists and others weigh in on the Federal Reserve’s aggressive new policy action.
Altogether, we interpret today’s action as a bold shift in Fed policy.
On the one hand, the committee significantly strengthened its
commitment to a low rate environment and embarked on an open-ended
purchase program. These moves indicate the accommodation switch has been
“turned on” and the data have to tell the committee when to stop. On
the other hand, boldness has been traded for more uncertainty, as the
overall amount and duration of Fed purchases will be dependent on
evolving economic conditions. Whereas with past Fed purchase programs,
market participants had fairly concrete knowledge about the total amount
of purchases and time horizon over which these purchases would be
conducted, the current open-ended purchase program provides less
information up front. –Michael Gapen, Barclays
They could well come back and add Treasuries after Operation Twist ends at year end.
Here is the key line: “If the outlook for the labor market does not
improve substantially, the Committee will continue its purchases of
agency mortgage-backed securities, undertake additional asset purchases,
and employ its other policy tools as appropriate until such improvement
is achieved in a context of price stability.” –Jim O’Sullivan, High Frequency Economics
