From the Fed minutes released today:
"Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation....A few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run."
From TF Metals Report:
FRIDAY, MAY 20, 2011
Points For Friday
A couple of things before we get to the charts.
Just to address this "ending of QE" issue again. By some estimates, the U.S. Federal Reserve and their primary dealers (the PDs are the agents from which they buy back recently issued bonds via POMO) make up as much as 70% of the bidders in the overall treasury market. If they were to now exit this market, even in part, interest rates will rise dramatically as prices of bonds will fall due to lack of demand. The latest $600B QE/POMO schedule lasted 6 months. What was the U.S. federal deficit over those same six months? A little more than $600B. Even Stevie freaking Wonder can see the direct connection.
If the Fed halts QE:
1) Rates skyrocket
2) U.S. economic activity grinds to a halt
3) Tax revenues plummet
4) Even more deficit spending is then required
5) Rates go even higher
6) Interest on national debt component becomes an even larger % of federal budget
7) Even more deficit spending is required
8) Rates go higher still
9) Tax revenues fall further
10) The Great Keynesian Ponzi finally ends
DO NOT believe this silly notion that QE is about economic growth. QE is about funding the deficits of the U.S. government. Every other effect is ancillary. The only thing that would allow the Fed to end QE would be a dramatic reduction in the annual federal deficit. This would lead to a deficit spending level that the "market" in treasuries could absorb. Until then, the presses will run. Period.
Again, the intraday high of the August11 contract was 1577.70 on 5/2/11. A close above there would be extraordinarily bullish. This afternoon's high was 1574.30. Tomorrow will be quite interesting. TF