Tag Archives: Monetary Operations

Fed policy changes Cont’d

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(A response to a comment about Fed policy changes)

On Tue, Mar 11, 2008 at 9:46 AM, Mike wrote:

the dollar may be the buy of a lifetime here….

Right, especially if the Fed cuts less than expected next week, or not at all.

Vicious reversal of commodities, USD, short term rates, but bad day or two for stocks.

This expanded lending facility may also function to increase the supply of short Treasuries for money funds and narrow the Treasury/LIBOR spread and shut up the rocket scientists who say low rates on short term Treasuries are the market screaming for rate cuts.

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Fed policy changes

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The Fed continues to show a deficiency in understanding monetary operations with the latest moves. While steps in the right direction, a better understanding of monetary operations would have meant funding ANY member bank asset at the FF rate and establishing an unlimited term lending facility for Treasury securities.

Meanwhile they seem to be trying to minimize further rate cuts and instead trying to target areas of illiquidity as per Friday and today’s announcements. They may have reached their inflation tolerance with crude at $109, the dollar continuously falling, and inflation expectations elevating.

Somewhat more troubling is the eurozone seemingly wanting dollar lines from the Fed. Not sure why, but borrowing external currency isn’t ordinarily a good sign.

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