Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17
Evidence of a Stock Market Top Mounting - 10th Dec 17
Bitcoin Doesn’t Exist – Forks and Mad Max - 10th Dec 17
Bitcoin Doesn’t Exist – Putting the Banks Out of Business - 9th Dec 17
China’s Struggle for Market Economy Status - 9th Dec 17
Is Gold Really Strong? - 9th Dec 17
Bitcoin Parabolic Mania - 8th Dec 17
SPX Make a 61.8% Retracement - 8th Dec 17
Gold, Stocks and Bonds - The 3 Amigos Update - 8th Dec 17
Gold Stocks Break, Gold to Follow - 8th Dec 17
4 Charts That Show How Trump Tax Cuts Will Trigger A Recession - 8th Dec 17
Precious Metals Breaking Down! 3 Amigos to Abort? 4 Horsemen to Ride? - 7th Dec 17
Bitcoin Just Smashed Through $12k… Wait, $13k… Now $14k… This Is Getting Ridiculous! - 7th Dec 17
Stock Market Tops Look Like This - 7th Dec 17
Crude Oil, Oil Stocks and Invalidation of Breakouts - 7th Dec 17
Bitcoin Doesn’t Exist – 2 - 7th Dec 17
British Pound Sterling Volatility In Crucial Week of Brexit Talk - 6th Dec 17
Day Trading vs Swing Trading: Which One is the Better Strategy? - 6th Dec 17
Crude Oil and Negative Divergences - 6th Dec 17
EU Bailins Coming – 114 Italian Banks Have NP Loans Exceeding Tangible Assets - 6th Dec 17
Bitcoin Doesn’t Exist - 5th Dec 17
Advantages of Car Insurance to Protect a Vehicle - 5th Dec 17
How High Will Gold Go? - 5th Dec 17
The Loonie Takes Flight -- BUT a "Labor Miracle" is NOT the Reason Why - 5th Dec 17
The True Meaning of Bitcoin's 'Success' - 5th Dec 17
Gerald Celente: Middle East Wild Cards Could Bring Down Markets, Drive Up Gold - 5th Dec 17
Silver’s Positive Fundamentals Due To Strong Demand In Key Growth Industries - 4th Dec 17
Stock Market Positive Expectations, But Will S&P 500 Continue Higher? - 4th Dec 17
Bitcoin Achieved What The Gold Market Never Could & Never Will? - 4th Dec 17
Stock Market Top Distribution Starting - 4th Dec 17
Understanding Real Time Forex Trading - 4th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

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

© 2005-2018 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