Via Bloomberg
Federal Reserve Chairman Ben S. Bernanke sent bond yields a percentage point higher just by talking about adding stimulus at a slower pace. The rout serves as a warning to monetary policy makers that their exit from record accommodation won’t be easy to control.
The jump in yields has pushed up the cost of mortgages for millions of Americans, curbed demand for homes and prompted thousands of job cuts at Bank of America Corp. and Wells Fargo & Co., all at a time when the Fed’s policies are aimed at creating jobs and supporting housing.
Bernanke has stressed that any reduction in the amount of money the central bank pumps into the financial system each month doesn’t mean policy is getting any more restrictive. That message hasn’t been heeded by bond investors, demonstrating how hard it will be for the Fed to control long-term interest rates as it moves toward tightening, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
“Getting out of ultra-low interest-rate policy was never going to be easy, and this is a perfect illustration of why,” Crandall said. “It is possible that this will make it even harder because the market will be even more primed to view inflection points as messy and destructive, and therefore a reason to sell early.”
........... Some interesting food for thought in the article above and the video interview of Gary Shilling below. Think of this for one moment, the Fed is now leveraged roughly 60 to 1 on reported capital on its balance sheet, capital that is likely overstated due to accounting rules in conjunction with a rise in interest rates. any changes to the composition of its balance sheet in regards to how those changes are funded will likely dictate the future course of asset price volatility.
Federal Reserve Chairman Ben S. Bernanke sent bond yields a percentage point higher just by talking about adding stimulus at a slower pace. The rout serves as a warning to monetary policy makers that their exit from record accommodation won’t be easy to control.
The jump in yields has pushed up the cost of mortgages for millions of Americans, curbed demand for homes and prompted thousands of job cuts at Bank of America Corp. and Wells Fargo & Co., all at a time when the Fed’s policies are aimed at creating jobs and supporting housing.
Bernanke has stressed that any reduction in the amount of money the central bank pumps into the financial system each month doesn’t mean policy is getting any more restrictive. That message hasn’t been heeded by bond investors, demonstrating how hard it will be for the Fed to control long-term interest rates as it moves toward tightening, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
“Getting out of ultra-low interest-rate policy was never going to be easy, and this is a perfect illustration of why,” Crandall said. “It is possible that this will make it even harder because the market will be even more primed to view inflection points as messy and destructive, and therefore a reason to sell early.”
........... Some interesting food for thought in the article above and the video interview of Gary Shilling below. Think of this for one moment, the Fed is now leveraged roughly 60 to 1 on reported capital on its balance sheet, capital that is likely overstated due to accounting rules in conjunction with a rise in interest rates. any changes to the composition of its balance sheet in regards to how those changes are funded will likely dictate the future course of asset price volatility.
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