Home > Main > The Fed will probably announce another $100bn of Purchases on Jan 12th

The Fed will probably announce another $100bn of Purchases on Jan 12th

December 21, 2010

Since the Fed announced QEII, Mortgage rates have gone up significantly.   The Fed does not want higher rates, it wants lower rates.

One way to make rates lower is to lower the benchmark rate, and one way to lower the benchmark rate is to buy lots of Treasuries.

Conveniently for the Fed, it has announced a program to purchase lots of Treasuries, and has also said that it is targeting interest rates on the longer end of the curve.   It has also said that it would buy more than the announced amount if needed, and that these purchases will not cause inflation.

All of this adds up: The Fed is likely to announce another $100bn of treasury purchases over the 5-6 weeks starting last week of January.    If that doesn’t work, expect another $100bn in March and April.

One of the key ideas of MMT is that Fed actions are about price and not quantity. How long can the bond market hold its lows with this amount of concentrated buying?   What happens if the Fed does all of the purchases before June 1st?

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