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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (12690)	3/25/2011 1:37:31 PM
From: Jon Koplik	Read Replies (2) \| Respond to of 33421

Fed guy explains : economy is great, int. rates need to go up soon. Moron ................................ So ... the same morning that the consumer confidence index plunged online.wsj.com and : "in fact it notes that the fewest consumers in more than 50 years expect their income to increase" One of our distinguished Federal Reserve Board "voting members" mentions : "The economy has gained significant strength and momentum since last summer and seems to be on a much firmer foundation going forward" as part of the reason that U.S. interest rates need to go up a lot (and soon.) (Here is one quick article on this) : March 25, 2011, 12:38 p.m. EDT Fed's Plosser: Funds rate should hit 2.5% in year By Greg Robb WASHINGTON (MarketWatch) - The Federal Reserve should hike interest rates from current range near zero to 2.5% within a year under a plan unveiled Friday by Charles Plosser, the president of the Philadelphia Federal Reserve Bank. Plosser did not give a specific time when this exit would begin but said it would have to start in the "not-too-distant future." In a speech to economists from the monetarist school on Friday, Plosser laid out an aggressive plan where the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate. A slower approach could last 18 months rather than a year, he said. This would require only $67 billion of conditional sales between meetings but the funds rate would rise to 3.5%. Plosser, a voting FOMC member this year, said he did not think this strategy would disrupt markets. --------------------------------------------------------------- I want to "get this on the record" : I predict future events will demonstrate that Plosser is a clueless idiot. Jon. **************************************** MARCH 25, 2011, 12:15 P.M. ET Fed's Plosser: Need To Tighten Policy In 'Not Too Distant Future' By Michael S. Derby DOW JONES NEWSWIRES NEW YORK (Dow Jones)--While he declined to say when he wants it to happen, a key Federal Reserve official argued Friday the central bank will need to tighten policy on all available fronts when the time comes to act. "Monetary policy will have to reverse course in the not-too-distant future and begin to remove the massive amount of accommodation it has supplied to the economy," Federal Reserve Bank of Philadelphia President Charles Plosser said. "The economy has gained significant strength and momentum since last summer and seems to be on a much firmer foundation going forward," he explained.** Plosser, a voting member of the monetary policy setting Federal Open Market Committee, is one of the most hawkish members of that body. While he has not dissented against the actions taken by the FOMC this year, the official has expressed considerable skepticism about the ongoing $600 billion bond buying program currently being pursued by the central bank, believing it offers little support to growth while generating inflation risks down the road. Plosser's comments came from the text of a speech prepared for delivery before in New York before a gathering held by E21 and central bank critics, the Shadow Open Market Committee. The central banker used much of his speech to explain how he'd like to see the Fed unwind a balance sheet that's grown from around $800 billion at the start of the financial crisis in late 2007 to around $2.5 trillion today. The Fed has a number of options before it, from raising the fed funds and interest on reserves rate, to temporary and permanent asset sales. There has been little clarity about the sequence of those potential actions. Plosser's speech sought to bring clarity to the situation, and proposed some combination of all the main strategies be used at once, in a predictable fashion. "My proposed strategy involves raising rates and shrinking the balance sheet concurrently and tying the pace of asset sales to the pace and size of interest rate increases," the official said. Plosser said he sees the fed funds rate regaining its prominence in monetary policy, and that the first step of a tightening would be to raise that rate. The Fed should allow its mortgage holdings to run off and announce that it will launch "continuous sales" of the Treasury, agency and mortgage debt now on its balance sheet, he said. But since getting to an all Treasurys balance sheet is critical, sales should be concentrated on mortgage securities, Plosser added. The central banker counter critics who worry markets will struggle to absorb what the Fed is selling by saying the pace of unloading securities should be no faster than the pace of buying. Also, "given that market functioning has returned to normal, I believe asset sales are unlikely to have a significant impact as market participants' demand for risk and duration rise." Plosser said that linking asset sales to changes in short term rates is a policy that "can be easily communicated" and allows the Fed to respond to shifting economic conditions. It will also help markets get ready to deal with the large scale sale of assets that will be coming. Plosser said he also wants the currently massive levels of bank reserves to fall by as much as $1.5 trillion over the course of the tightening, to around $50 billion. The official's other comments on the economy were limited. Plosser said companies are adding jobs with will drive "continued modest declines in the unemployment rate." The central banker said the risk events in Japan and the Middle East could affect the U.S. economy are "small and short term," and explained ongoing trouble in the housing sector will not prevent the recovery from going forward. - By Michael S. Derby; Dow Jones Newswires, 212-416-2214 michael.derby@dowjones.com Copyright © 2011 Dow Jones & Company, Inc.