Guest post by Lance Roberts of Streettalk live.
Earlier this year, as the markets were expecting QE3 from one Fed meeting to the next, I was stating another program would not come until September, after data for Q2 GDP could be analyzed. However, as we moved into August and the markets were rallying strongly on “hope” of further balance sheet expansion programs, I moved my QE estimates out until the end of the year. My reasoning, as I stated, was based on the assumption that Bernanke would save his limited ammo for a weaker market/economic environment. Clearly I was wrong.
Much to my surprise, and against all of what seemed logical, Bernanke launched an open-ended mortgage backed securities bond-buying program for $40 billion a month “until employment begins to show recovery.” That key statement is what this entire program hinges on. The focus of the Fed has now shifted away from a concern on inflation to an all-out war on employment and ultimately the economy. However, the big question is: Will buying mortgage backed bonds promote real employment, and ultimately economic, growth? And will this program continue to support the nascent housing recovery?
Employment – Where’s The Demand?
During the Fed’s announcement today Bernanke repeated several times that the primary concern of the Fed is now employment. One of the Federal Reserves primary legal mandates is to foster full employment in the economy. However, after two previous Large Scale Asset Purchase programs (QE),and a Maturity Extension Program (Operation Twist – OT), has employment meaningfully recovered.