The big shift: Fed makes $400 billion adjustment to its portfolio

Federal Reserve Board Chairman Ben Bernanke delivers remarks at the Federal Reserve on Sept. 15, 2011 in Washington, D.C.

You could practically hear hundreds of billions of dollars shifting positions on financial markets an hour and half before the stock market closed today. It was prompted by bulletins that read "Fed to extend average maturity of holdings." Translation, something called Operation Twist," a strategy from the JFK era in which the Federal Reserve tries to force down longer term interest rates without effectively printing more money.

Economist Richard DeKayser, at the financial and business consulting firm the Parthenon Group, monitored Fed statement as it came in. I started by apologizing for sounding like this was the denouement of some thriller, but he agreed and said it was tremendously exciting.

It was fascinating to watch the readout on the yield for the 10 year bond as investors digest the Fed's announcement. Down it went to around 1 point 88 percent. The lowest anyone under retirement age in America has ever seen. It was a flight to bonds not to gold. Late this afternoon an ounce of gold was down almost 17 dollars, nine tenths percent.

De Kayser said the Fed' action is all ultimately about juicing the economy, by getting people to buy houses and such. He said the size of the shift in the Fed's portfiolio, about $400 billion was not trivial, and will roll out over the rest of the year. He noted we have tried action like this before, in the early 1960's and the jury's out about whether its effective. In journalism, we pour scorn on any story that ends with the words, "we'll have to wait and see," but this time, with the market, if not the world, monitoring the US economy closely, waiting and watching is exactly what everyone is doing.


Also on the show today, credit card solicitations are double what they were last year, according to a new report from Credit Suisse. That's good news, if you think that Americans will use credit cards to buy more stuff. That could juice the economy. On other hand, this is credit card debt we're talking about. Load up on too much of it, and we could end up in real trouble. That good news, bad news leaves the Marketplace Daily Pulse steady as a rock today.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...