Bernanke vs. the yield curve
June 7, 2009
Bloomberg has a great article on the tough spot Bernanke finds himself all of a sudden with long-term rates shooting up. I was hoping for another 200B in purchase commitments this week, but they have a good point this is unlikely, because….
The Fed probably won’t make any adjustments to the size of the Treasury purchase program before its next policy meeting on June 23-24, in part to avoid reinforcing perceptions policy is reacting to swings in yields, according to Jim Bianco, president of Chicago-based Bianco Research LLC.
“The Fed wants to operate in predictable ways,” Bianco said. “They are also trying to not just look arbitrary, which makes people think ‘I can’t ever go to the bathroom because there could be a press release that the Fed changed the buybacks.’ That’s been a real concern: ‘Wow, I just went to the bathroom and lost $2 million dollars.’”
So why can’t the Fed simply fine tune the current program, purchasing only long-term debt with what remains of the 300 billion they’ve already announced?
Actually, they may be doing just that. Wednesday’s scheduled purchase is for maturity dates of 2019-26. Look for that one to be big (10-20B).