| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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The Fed's Exit Begins
The central bank is beginning to extricate itself from its unprecedented interventions in the financial system. |
Forbes.com - August 12, 2009 - by Joshua Zumbrun
The Federal Reserve is famous for its extremely deliberate statements.
So when it said on Wednesday that "economic activity is leveling out," it marked a significant improvement in outlook from the last meeting, at the end of June, when the Fed was only confident enough to say "the pace of economic contraction is slowing."
Although the Federal Open Market Committee, which sets monetary policy, is not ready to start raising interest rates, it's increasingly confident of recovery and on Wednesday announced that one of its most significant programs, large purchases of government debt, will be coming to an end in October. (See "Fed Faces Its Zimbabwe Moment.")
"Economic activity is likely to remain weak for a time," the committee said in its statement, but it continues "to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."
Translation: The Fed believes economic resuscitation efforts are working and the economy is slowly but surely heading for recovery. Inflation? The Fed thinks it will remain subdued into a recovery. The Fed believes that even once the economy starts growing there's simply too much "slack"--too many people without jobs and without cash--for prices to rise significantly.
The Fed reiterated its longstanding commitment to "employ all available tools to promote economic recovery and to preserve price stability."
But already, some of those tools are going back into the toolbox.
The first tool to go back into the box will be the Fed's controversial program to print new money to buy government debt. The Fed committed back in March to spend $300 billion purchasing debt over six months. Its stated purpose was to lower interest rates--but a central bank buying government debt can be a classic step toward hyperinflation and destroying a currency.
On Wednesday, however, the Fed confirmed its exit for the first time in its monetary policy statement. Since March, the Federal Reserve has been a significant purchaser of Treasury debt, often buying $7 billion of bonds at each auction.
"To promote a smooth transition in markets as these purchases of Treasury securities are completed, the committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October," says the statement.
Rather than have its $7 billion appetite disappear from the auction, the Federal Reserve is planning to take a little extra time to slowly wean itself, and the market, from the program.
"It appears that the FOMC is slowly moving the U.S. economy from the intensive care unit to the recovery suite, where it will nurse the economy back to health," said Millan Mulraine, economics strategist for TD Securities, in a note. "This shift is particularly pivotal, as it shows that the Fed's concerns about the downside risks to growth have all but diminished, though, of course, the recovery is likely to be slow and fragile."
Unchanged, for now, is the Fed's decision to keep interest rates at the floor. The Fed's target rate, which has sat at 0% to 0.25% since December, will not move. The Fed says, in language unchanged from December, that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
Also unchanged are the plans to purchase $1.25 trillion in mortgage-backed securities to support the mortgage market in the U.S. As of July 29, the Fed had completed $702 billion of these purchases, and thus has a lot of purchasing left to do before the program's scheduled expiration at the end of the year.
The Fed still has a lot of tricky maneuvering to do to unwind its emergency programs. The slow end to the Treasury purchase program is the first step toward the exit.
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