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The Fed and treasury securities

Marketplace Staff Nov 3, 2010

The Fed and treasury securities

Marketplace Staff Nov 3, 2010


STEVE CHIOTAKIS: Voters across the country handed the GOP control of the U.S. House of Representatives, and with it, political bragging rights. For now. But as big a deal as it is — and it’s a big deal — perhaps more important to the global economic landscape is what happens when the Federal Reserve decides today on how much money it pumps into the financial system.

Scott Minerd is CEO and chief investment officer at Guggenheim Partners. He’s with us live this morning from New York. Scott, good morning.

SCOTT MINERD: Good morning Steve.

CHIOTAKIS: What are we gonna find out today?

MINERD: Well the Fed is going to tell us exactly how many Treasury Securities it’s going to buy each month. And how many months it expects to be purchasing the securities.

CHIOTAKIS: What kind of reaction can we expect from whatever decision comes?

MINERD: Well the market has set at expectation that the program should probably be somewhere of the neighborhood of $500 billion. If the program is deemed by the market to be too small, then we’re likely to get a sell off in equity and bonds. If the market perceives that the program is too big, then there will probably be problems for the dollar.

CHIOTAKIS: You say sell off of equity and bonds. So stocks are going to go down?

MINERD: That’s right, exactly.

CHIOTAKIS: And give us a little 101 of exactly what that means.

MINERD: Well what it means is this: that the economy is at stall-speed. If the program to purchase treasuries and drive interest rates down to stimulate growth is deemed to be too small to be effective, then the markets will be disappointed with it. If it’s deemed that the Fed is doing too much, and buying too many securities then the market will become concerned about inflation in the long term.

CHIOTAKIS: Hey Scott, how sensitive is the Fed to politics and specifically what happened yesterday?

MINERD: Well the Fed definitely keeps its eyes on politics. The events of yesterday were fortunately well timed. The meeting today follows the election. Given the mandate that was handed to the Republicans, the Fed is going to be very concerned about whether we’re going to have grid lock or whether we’re going to get any policy from the other side of the government to stimulate growth.

CHIOTAKIS: Alright, Scott Minerd from Guggenheim Partners. With us from New York. Scott, thanks for the insight.

MINERD: Thank you Steve.

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