More anti-TBT jaw-jaw, via Goldman and B'berg this time:
Goldman’s Hatzius Says Fed to Buy Bonds ‘Before Long’ (Update1)
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By Matthew Brown and Bo Nielsen
Feb. 3 (Bloomberg) -- The Federal Reserve is likely to start buying Treasuries as policy makers seek alternative ways of reviving credit markets, according to Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc.
The Fed said on Jan. 28 that it’s “prepared to purchase longer-term Treasury securities” to help lower borrowing costs as seven cuts in the key interest rate to near zero since the start of 2008 left it with little room for further reductions. It didn’t give a timeframe for any bond purchases.
“The Fed will move to purchase Treasuries before too long,” Hatzius said today at a foreign-exchange conference hosted by Goldman Sachs in London. “They are going to try to support private-asset markets for the next couple of years.”
Policy makers lowered the target rate for overnight loans to a range of zero to 25 percent in December as the freeze in credit markets plunged the U.S. economy its deepest recession since the Great Depression. The economy lost almost 2.6 million jobs last year. The PCE Core, the Fed’s preferred gauge of inflation, fell to an annual 1.7 percent in December, a report showed yesterday.
The central bank will buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement last week in Washington. Any purchases before the FOMC’s next meeting on March 17 would need a vote to authorize the action.
Rescue Package
President Barack Obama plans to unveil a bank-rescue strategy in coming weeks to bolster growth and stabilize financial markets. One part of the package will be addressing the toxic assets that are clogging lenders’ balance sheets, preventing them from expanding credit, people familiar with the matter said last week.
The U.S. may broaden the Term Asset-backed Securities Loan Facility, or TALF, to include a wider range of assets, create a “bad bank” to absorb toxic assets, purchase long-term Treasuries and set an inflation target to prevent price expectations from dropping, Hatzius wrote in a note last month.
Ten-year Treasuries fell after the government said yesterday it will borrow $493 billion this quarter, 34 percent more than initially projected. The yield on the 10-year note increased four basis points to 2.76 percent as of 6:44 a.m. in New York today, according to BGCantor Market Data.
“The gap between zero and the appropriate fed funds rate is considerable -- it should be around minus 6 percent,” Hatzius said today. |
