Last Friday’s mediocre employment report gives the Fed (meeting this week) ample reason to continue buying Treasuries and mortgage-backed securities at the rate of about $80 billion/month for the foreseeable future. As for the employment report, average hourly earnings rose only 1.7% over the past 12 months, while the CPI increased 2.2%! The workweek remained unchanged at 34.4 hours. September and October employment gains were collectively reduced by 49,000.
Tag Archives: the Federal Reserve
Money for Nothing
On 7/5/12 the ECB reduced to zero the rate it pays banks that park excess reserves with it. The Fed is now considering following suit. There are $1.5 trillion of excess reserves at the Fed which if loaned, would help the economy. But the Fed won’t, as it will not increase lending much and would probably force money-market rates negative, causing all sorts of unintended consequences elsewhere in the economy.
Inflation and Godot
While many are nervous the massively stimulative monetary policy engineered by the Fed will inevitably trigger inflation, those folks are waiting for Godot. Subtracting the current yield on a 10-year Treasury Inflation Protected Securities (TIPS) bond (-0.637%) from the current yield on a regular 10-year Treasury bond (1.52%) gets us 2.157%. This means headline inflation over the next decade in expected to average just over 2%. Worry about something else!