Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - 30th July 16
SPX Stock Market Uptrend Resumes - 30th July 16
Gold And Silver – Merkel: Example Of How Clinton Is A Globalist Puppet - 30th July 16
Some Thoughts at the Stock Market Mountain Top - 30th July 16
Gold Stocks Benchmark Battle - 30th July 16
Top 10 Pokemon GO Playing Tips, Tricks and Secrets! - 30th July 16
Asset Bubbles Tend to Crash with a Vengeance - 29th July 16
Retirees Are Risking Their Life Savings on Junk Bonds - 29th July 16
The Next Recession is Coming - Expect Around 0% Returns for the Next 7 Years - 29th July 16
SPX is Shaking and Rolling - 29th July 16
Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - 28th July 16
FOMC Interest Rates and Their Impact on the US Economy - 28th July 16
The State Of The Economy - 28th July 16
Elliott Wave Crash Course - 3 Ways the Elliott Wave Principle Enhances Your Trading - 28th July 16
Japan's "Helicopter Money" Play: Road to Hyperinflation or Cure Debt Deflation? - 27th July 16
Monetary Zika - The Insidious Nature of Credit Expansion - 27th July 16
Gold and Pork Bellies - 27th July 16
Silver Is Insurance Against The Worst Part Of This Depression - 27th July 16
Don’t Buy The SPX Hope Stock Market Rally! - 27th July 16
Bitcoin $650 Still in Play - 26th July 16
Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - 26th July 16
The Forex Markets Are Getting Exciting! - 26th July 16
Underpriced Silver Is the “Rip Van Winkle” Metal - 25th July 16
Declines in Multiple Market Indexes - 25th July 16
Retailers Are Doomed as Most Americans Are Too Poor to Shop - 25th July 16
Here’s One Currency That Could Go to Zero - 25th July 16
Stock Market Top is Expanding - 25th July 16
Silver Manipulation – Because They Needed the Eggs - 25th July 16
Silver Market COT Stuns: What's Going On Here? - 24th July 16
Gold Demand Remains Stable During Sector Weakness - 24th July 16
Sernova, Diabetes and Haemophilia - 24th July 16
Russia: Tensions, Turmoil, and Western Hubris - 24th July 16
Soybean Commodity Price to Soar Again - 23rd July 16
SPX Stock Market Uptrend Continues - 23rd July 16
Gold And Silver – Debt Addiction Will Carry Precious Metals Higher, Guaranteed - 23rd July 16
Pokemon Go - How to Play, First Use, Balls, Stops, Catching Pokemon's... Great Excercise! - 23rd July 16
7 Signs That the Gold Market Remains Resilient - 23rd July 16
Basic Income in The Time of Crisis - 23rd July 16
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

Will the Fed End QE Summer 2013?

Interest-Rates / Quantitative Easing Jan 30, 2013 - 04:30 PM GMT

By: Money_Morning

Interest-Rates

Jeff Uscher writes: Amid all of the hoopla over the Standard & Poor's 500 Index touching 1,500 on Friday, it seems few people noticed that the yield on 10-year U.S. Treasury bonds has risen to within a couple of basis points of 2%. That is nearly 30 basis points higher than it was one month ago and 10 basis points higher than one year ago.

It seems as if the bond market is beginning to price in higher inflation at the long end of the yield curve, and that is something that has got to be worrying the Fed.


Successive rounds of quantitative easing (QE) have added a lot of liquidity to the U.S. economy and this has been repeated globally with massive amounts of liquidity being pumped into the market by the Bank of Japan (BOJ), the European Central Bank (ECB) and the Bank of England (BOE).

The Bank of Japan has committed itself to further aggressive easing under pressure from the newly elected government headed by Prime Minister Shinzo Abe. Even if BOJ Governor Masaaki Shirakawa has any second thoughts about additional easing, he will keep them to himself.

Why Some Central Bankers Are Worried
Other central bankers have raised a warning flag.

BOE Governor Mervyn King told the U.K. parliamentary treasury select committee last week, "One of the things we ought to be a bit concerned about is interest rates have been so low for so long...that the search for yield appears to be beginning again...A combination of a weak recovery and yet at the same time people searching for yield in ways that suggest risk isn't fully priced is a disturbing position."

And Kansas City Federal Reserve Bank President Esther George said in a Jan. 22 speech, "In promoting its longer-run goals, the FOMC must weigh the benefits and the risks of maintaining an unusually accommodative monetary policy stance for a protracted period...Monetary policy, by contributing to financial imbalances and instability, can just as easily aggravate unemployment as heal it. Economic models tend to highlight the benefits of such a policy, but cannot fully account for the future risks."

George continued, "I have highlighted the risk of financial instability and the risk of higher inflation because, although some say they are unlikely, history shows that becoming too sanguine about either can lull us into thinking we can avoid them."

QE and Instability vs. Inflation
Julian Brigden, managing partner of MI2 Partners, raises an interesting point: "It is also important to understand that ending QE does not necessarily signal the beginning of monetary tightening."

Brigden said "the much more likely scenario is that by the summer, the economy is still only trundling along and unemployment is sitting in the 7.5% range. The idea of rate hikes at that point is a joke. Yet, QE could still end, simply because this tool of monetary policy hasn't delivered sufficient real economic growth, while building greater financial risks in the system."

The question is how much the bond markets depend upon asset purchases by central banks for maintaining current prices.

In the U.S., it seems as if higher yields (lower prices) for Treasury bonds at the long end of the curve are telling us that the end of QE might mean the end of ultra-low, long-term interest rates.

This has ramifications that go far beyond the Treasury bond market. For example, mortgage rates are usually based on 10-year Treasury bond yields.

If 10-year Treasury yields rise, mortgage rates, which are now near all-time lows, could reverse and start to rise too. What would that do to gathering momentum in the housing market?

Yet, it is dangerous to just keep pumping money into the economy through QE.

Last week, Federal Reserve Chairman Ben Bernanke dismissed the idea of imminent inflation but indicated that the continuation of QE would be evaluated on a risk/return basis.

"As we evaluate these polices, we're going to be looking at the benefits which, I believe, involve some help to economic growth to reduction in unemployment," Bernanke said. "But we're also going to be looking at cost and risk."

Maybe it is still too soon to call the end of QE. But investors should be aware of and sensitive to that possibility.

The Treasury bond market might be telling us that it won't take a rate hike to push yields higher at the long end of the curve. Just turning off the money spigot might be enough to push us over the edge.

Source :http://moneymorning.com/2013/01/30/the-doomsayers-are-wrong-about-oil-prices/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife