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Monday, July 30

30th Jul - Special: FED WATCH

These are the FED and QE-related articles that have appeared on my blog posts in the past few days. I will update this post as new material comes along and also follow "after the fact" market reactions, analysis, and comments. Latest additions at the bottom of the post!

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Strategic Briefing: Is The Fed Set To Roll Out QE3?The Capital Spectator

An early FOMC preview: the menu of optionsalphaville / FT
As usual we won’t play the percentages; instead we’ll just run through the possibilities and list a few of the potential complicating factors involved with each of them.

Examining the Fed’s other policy optionsSelf-Evident
So what are the “other tools” everyone is talking about?

QE3 TalkStephen Williamson

Bernanke's DogsThe Short Side of the Long

Doubts about Quantitative Easing and What they Mean for the FOMCEconoMonitor

Bank of America: 65% Of QE3 Is Already Priced InZH

Presenting The Good, Bad, And Nuclear Options For The Fed ZH
Bank of America’s table and discussion of the options

Stephen Roach: Fed dangles QE3 ‘crack’ cocaine as ‘raw meat’ for marketsCredit Writedowns
So, the Fed is going to give the addict what it wants because advocates of easy money are everywhere in both liberal and conservative circles. Will it work though? No.

Another reason the Fed should do moreFree exchange / The Economist
In the last rate cutting cycle (2000-2003) the Fed cut its policy rate by around 5.5 percentage points. The rates firms had to pay to borrow fell by 2.5 percentage points. This time (2007-2010) the Fed’s cut was pretty much the same. But the rate solid American companies had to pay to borrow in markets hardly fell at all

Why Europe Matters to the USTim Duy’s Fed Watch
The point of further easing would not be to alter the situation in Europe - THE POINT IS TO PREVENT THE SITUATION IN EUROPE FROM WASHING UP ON US SHORES.

One More DancePIMCO
We are witnessing a synchronized slowdown worldwide that is beginning to affect corporate profits. The most likely right-tail event is the Federal Reserve launching another round of quantitative easing.

Four Common Mistakes about the FedA Dash of Insight
The Fed is Sidelined by the Upcoming Election - The Fed Acts Based Upon the Stock Market - The Fed is Out of Ammunition - The Fed Knows the Employment Data

Chuck Norris Central Banking Promoted by Fed OfficialMacro and Other Market Musings
The ability of the Fed to shape expectations such that the market does most of the heavy lifting has become known among Market Monetarist as the Chuck Norris effect.

"It’s Been A Fun Ride, But Prepare For A Global Slowdown"ZH
Bank of America’s report looks at the Fed’s and ECB’s choices and gives hints on what things to look at when measuring the effectiveness of the policies.

The Weekly T Report: From QE to PETF Market Advisors
Don't the Markets NEED QE? - Europe Won't Deliver? - There is no plan? - Even if the plan is implemented, nothing is fixed? - So Europe is fixed? - Is Draghi Dumb?

FOMC Preview: QE3 now or later? Calculated Risk
The data supports QE3 this week, but the data also supported QE3 in June. One of the reasons I thought QE3 was unlikely in June was the lack of foreshadowing from the Fed. There have been plenty of hints since then, so QE3 is very possible this week - but still uncertain.

Economists React: Don’t Expect QE3 This WeekReal Time Economics / WSJ
Analysts tended to argue that the central bank needs to see two more jobs data releases before reaching a consensus on the need for more stimulus. Many say they see the Fed as much more likely to act at its subsequent policy-setting meeting, scheduled for Sept. 12-13.

Fed May Be in Whatever-it-Takes Mode, But It May Not Take it This WeekMarketBeat / WSJ
If the Fed doesn’t act, if the Wednesday policy statement comes and it doesn’t include a QE3 announcement, the market is sure to get the usual knee-jerk reaction, a sharp sell-off as the bets are unwound with computerized speed and human alacrity. But it won’t take long before traders wrap their heads around the next FOMC meeting, or the August
Jackson Hole confab, and start putting the QE3 bets back on.

Bad Habits: The Greenspan Put The Psy-Fi Blog
So the markets are not pre-empting the Fed, nor is the Fed driving the markets: the markets are forcing the Fed to respond to its liquidity habit.  Weaning them away from this is going to take leaders with great vision and great determination: so most of us will probably be better off betting on the continuation of the Greenspan Put.

Charting The Diminishing Multiple Expansion Benefits Of Fed ActionZH
As soon as the Fed-sponsored money-supply 'flow' expansion ended, so the P/E multiple-expansion ended (and indeed reversed very quickly).

Fed likely to wait until September before easing moreDanske Bank (pdf)

Preview FOMCMarc to Market
The advantage of the September meeting is that 1) the Fed would have another two monthly employment reports and more economic data in general, 2) it may have greater insight into what European officials will do, and this could effect a headwind to the US economy that Fed officials have recognized, and 3) it provide more time to "devise new tools".

FOMC Meeting: 3 possible scenarios, plus 3 policy driversSaxo Bank
Remember that until further notice, this FOMC meeting will only see the release of a new policy statement. This is not one of the meetings that includes revisions of Fed economic and policy forecasts nor a Bernanke press conference (which we will see in September.).

Try overshooting for onceFree exchange / The Economist
We've experienced sustained periods of very high inflation, we've experienced disinflationary recessions, and we've experienced a prolonged period of very high unemployment, and we have a clear sense of which is the worst of the three. Given the reality of years, perhaps a decade, of high unemployment, the alternative approach—seeing if a couple of years of higher demand, consistent with 4% inflation, can help—looks not just attractive but obviously better.

The Fed’s 2% inflation target trapEconomist’s Forum / FT
Though not a problem today, this two per cent target represents a policy trap that will undercut the possibility of future wage increases despite on-going productivity growth.  That promises to aggravate existing problems of income inequality and demand shortage.

Will Ben Bernanke Pull the Trigger on More Bond Buying?TIME

(audio) Kounis Sees No QE3 From Federal Reserve This WeekBB (mp3)

The right swapalphaville / FT
Arvind Krishnamurthy and Annette Vissing-Jorgensen have an interesting variation on what the Fed should do next: start buying MBS while selling longer-term Treasuries.

Twist is Fed's most effective policy tool right nowSober Look
The most probable outcome of the FOMC meeting currently under way is the continuation of "Operation Twist" and possibly the extension of the current “exceptionally low… through late 2014” rate guidance to "mid 2015."

Golman Sachs: FOMC PreviewZH
Rate extension but no new QE

Like over-hyped Olympian, Fed set to disappointMacroScope / Reuters
The U.S. central bank may not want to get out just ahead of the European Central Bank’s policy decision on Thursday. If, down the line, things get really ugly in Europe – or if the U.S. Congress sends the country off the so-called fiscal cliff – the Fed will probably want to have the QE3 bazooka ready in its arsenal.

FOMC PreviewPragCap
Likely market reaction – a big dump followed by a comeback when investors realize the world isn’t going to end just because the baby didn’t get its pacifier.  And if I am wrong and the bazooka gets triggered tomorrow, well, I’ll see you on the other side of a 2% rally.  

FOMC PreviewPragCap
Likely market reaction – a big dump followed by a comeback when investors realize the world isn’t going to end just because the baby didn’t get its pacifier.  And if I am wrong and the bazooka gets triggered tomorrow, well, I’ll see you on the other side of a 2% rally. 

Fed Wraps Up Meeting as Markets Await ActionTIME

Fed to signal more easing but stop short of big stepsReuters
The Federal Reserve is likely to show on Wednesday that it is ready to act against a weakening economy but stop short of aggressive measures for now.

The Fed will Disappoint but it Won’t MatterTF MarketAdvisors

What Does The Market 'Expect' From The Fed/ECB?ZH
Citi’s short updated views

FOMC will provide additional accommodation as needed – ASA
The Fed, pacing – alphaville / FT

Fed says economy weaker, but leaves policy on holdReuters
The Federal Reserve on Wednesday said economic recovery had lost momentum so far this year, but stopped short of offering new monetary stimulus even as it signaled further bond buys could be in store.
Fed Signals More Steps to Spur Economy Amid Slower GrowthBB

Fed Does Nothing, Says Less and Dollar AdvancesMarc to Market

Fed Does Nothing; Stocks SinkMarketBeat / WSJ

Yields Flatten, FX Market Not Buying Equity 'Hope' ReversionZH

Redacted Version of the August 2012 FOMC StatementAlea 
Compares changes in statements

Fed: No help for the economy now, try us again laterWonkblog / WP

You can show the Fed all the unemployed workers and brewing crises you want. In the end, if you want them to act, you need to be able to show them evidence that inflation is below 2% and expectations are falling fast.

FOMC: Goldman's TakeZH
some form of monetary easing at the September 12-13 FOMC meeting is the current baseline.

The Fed is worried, but leaves policy on holdCBS

Bernanke says no to the peer pressureThe Big Picture

The Fed: NothingThe Daily Capitalist

Citi Sounds A Warning: "The Misread Of The Fed May Also Worry Investors That They Have Misread Draghi"ZH

First Policy Disappointment of the WeekTim Duy’s Fed Watch
As for September, it is data dependent.  But we need to see some substantially weaker data.  The last six months seems to have proved beyond a shadow of a doubt that the bar to more QE is much higher than could be inferred from the public comments of dovish policymakers.

Fed leaves policy unchanged but strengthens its easing biasNordea

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