23 Dec 2013
Flash: Fed's balance sheet will not peak until late 2014 - BBH
FXstreet.com (Córdoba) - With the Fed's decision to taper, it is tempting to accept that peak accommodation is behind us - yet may be a mistake, according to the BBH analyst team, who highlighted it is important not to confuse what the Fed announced.
Key Quotes
"The Fed is going to continue buying Treasury bonds and mortgage-backed securities, just at an (arguably) economically insignificant amount. In other words, its balance sheet expansion has not peaked".
"Even assuming that Bernanke's forward guidance is accurate and the Fed announces $10 bln tapering a meeting, the balance sheet will not peak until late 2014. And even then, it may still drift higher if it continues to recycle maturing/redemption issues".
"Moreover, the Fed has consistently argued that the real impact comes not so much from the flow but from the accumulated stock of holdings (kept off the market, displacing investors)".
"US fiscal policy is not as tight as had been expected, given the new budget agreement. However, Republicans are still demanding new spending cuts in exchange for lifting the debt ceiling. President Obama has refused to negotiate over paying for the spending that has already been authorized. Another showdown appears likely".
Key Quotes
"The Fed is going to continue buying Treasury bonds and mortgage-backed securities, just at an (arguably) economically insignificant amount. In other words, its balance sheet expansion has not peaked".
"Even assuming that Bernanke's forward guidance is accurate and the Fed announces $10 bln tapering a meeting, the balance sheet will not peak until late 2014. And even then, it may still drift higher if it continues to recycle maturing/redemption issues".
"Moreover, the Fed has consistently argued that the real impact comes not so much from the flow but from the accumulated stock of holdings (kept off the market, displacing investors)".
"US fiscal policy is not as tight as had been expected, given the new budget agreement. However, Republicans are still demanding new spending cuts in exchange for lifting the debt ceiling. President Obama has refused to negotiate over paying for the spending that has already been authorized. Another showdown appears likely".