Wednesday, December 17, 2008

Likely outcome of new Fed policies?

In Monday's post, "Fed rates heading toward zero", we talked about the actions the Fed would likely take in their upcoming meeting, and how their latest policies might affect the markets and the economy in the coming months.

A quick update to Monday's post (see the comments section) posted the results of the Tuesday Fed meeting, and some analysis on their latest statements from Bloomberg and The Big Picture.

The consensus seemed to be that Fed funds rate are not longer the prime driver of Fed policy, and that unconventional lending programs and "quantitative easing" are the new watchwords of the day.

Today we're going to share one very relevant section from yesterday's Bloomberg article on that subject, "Fed cuts rate to low as zero, shifts policy focus". Here it is:

"“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said...

...“The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,”
William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington, said in an interview with Bloomberg Television. Poole is also a contributor to Bloomberg News."...


So, I think the above paragraphs speak for themselves. The Fed obviously has no regrets over the recent swelling of its balance sheet, and it will continue to use these very unconventional measures to "support the markets" in the future.

Also, as we can see from William Poole's comments, the Fed is totally unconcerned about any inflationary effects that will take hold due to their "money printing". It's kind of stunning to hear a former regional Federal Reserve bank president deliver this verdict, no?

Related articles and posts:

1. Around the corner - Bear Mountain Bull.

2. Quantitative easing American style: free money - Mish.

3. Dollar falls most against Euro since 1999 debut - Bloomberg.

4. Stocks rally, then fall in wake of Fed moves - Bloomberg.