24 Dec 2013
Flash: Fed's balance sheet expansion has not peaked - BBH
FXstreet.com (Bali) - Despite the Fed's decision to taper, peak accommodation is not yet behind us, notes Marc Chandler, Head of FX at BBH.
Key Quotes
"It is important not to confuse what the Fed announced. The Fed is going to continue buying Treasury bonds and mortgage-backed securities, just at an (arguably) economically insignificant amount."
"In other words, its balance sheet expansion has not peaked. Even assuming that Bernanke's forward guidance is accurate and the Fed announces $10 bln tapering a meeting, the balance sheet will not peak until late 2014."
"And even then, it may still drift higher if it continues to recycle maturing/redemption issues. Moreover, the Fed has consistently argued that the real impact comes not so much from the flow but from the accumulated stock of holdings (kept off the market, displacing investors)."
Key Quotes
"It is important not to confuse what the Fed announced. The Fed is going to continue buying Treasury bonds and mortgage-backed securities, just at an (arguably) economically insignificant amount."
"In other words, its balance sheet expansion has not peaked. Even assuming that Bernanke's forward guidance is accurate and the Fed announces $10 bln tapering a meeting, the balance sheet will not peak until late 2014."
"And even then, it may still drift higher if it continues to recycle maturing/redemption issues. Moreover, the Fed has consistently argued that the real impact comes not so much from the flow but from the accumulated stock of holdings (kept off the market, displacing investors)."