Correlation much?
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This is my opinion based on a very long range macroeconomic view. As the dollar continues to strengthen relative to the currencies of our trading partners we should see the S&P cool off and possibly retract some. We have already seen a correction back to the October '14 low. Dollar strength is only one factor. The Fed will slowly reduce its balance sheet from here on out. We are about seven + years in to the cycle; it should take at least another 7-10 years to complete it. These are very long range operations, and the Fed is nothing if not patient and ultra conservative. We will complete the 2016 correction sometime this year, with at least a double bottom. Though unlikely, a full 20% correction off the S$P highs is not out of the question, before moving on. Don't expect anything other than a very mild recession at the very worst, and even that's unlikely.
I respect your scholarship but I am reminded of something an economics professor said in college years ago...."If you want ten different opinions of a thing, ask ten different economists."
It's not a linear relationship. It's a convex one.
You end up with more opinions than economists.
It's also easier to bullshit with macro than micro theory.
Even though... Your analysis make sense. Wish you to get it right.
I read that More than 200 billion of treasuries will mature 2016 and more moving forward in following years. Some pundits, free research, say they will use the proceeds of maturing debt to purchase more treasuries leaving the balance sheet unchanged. More "monitizing the debt"
or silent QE (unless they broadcast this as a tool ). That would be about 30% (200bil?) of US
Gov. Debt purchased by the fed in 2016.
Forgive errors in my numbers. Seems the effects of foreign sales of US treasuries to fill budget deficits or protect theiroown interests are overblown with a fed able to absorb so much.
Can primary dealers act on behalf of the fed in the secondary markets?
The fed's attempt to display what they refer to as courage to revive the economy was a dismal failure. If it had worked, they wouldn't have needed to keep zirp for seven years and go through qe time after time. The fact that they couldn't move off zero proved it didn't work.
They realized that if the next recession hit and they still hadn't raised rates, they would look like incompetent fools. So they saw the next economic contraction forming and paniced and decided to raise rates one time in an attempt to convey the impression that their policy had worked and they could declare success. Iow, create a narrative that escape velocity had finally been reached and everyone should thank the fed.
But the facts on the ground were murky and are proving otherwise. Indus prod was rolling over, inflation expectations somewhere between falling and tanking, and both at levels that have previously been precursors of recession.
Now fed funds futures are repricing and showing the projected rate increases being delayed at best.
They raised rates to cover their asses. That's the simple conclusion.
They realized that if the next recession hit and they still hadn't raised rates, they would look like incompetent fools. So they saw the next economic contraction forming and paniced and decided to raise rates one time in an attempt to convey the impression that their policy had worked and they could declare success. Iow, create a narrative that escape velocity had finally been reached and everyone should thank the fed.
But the facts on the ground were murky and are proving otherwise. Indus prod was rolling over, inflation expectations somewhere between falling and tanking, and both at levels that have previously been precursors of recession.
Now fed funds futures are repricing and showing the projected rate increases being delayed at best.
They raised rates to cover their asses. That's the simple conclusion.
that's my understanding too. The fed tells you what is maturing when on their site. I looked at that some time ago, but your figure seems about right if I recall correctly. It is mostly the CDOs on their balance sheet that have the longer maturity dates. They have the option to buy more bonds from proceeds, or not, as they think necessary. The Fed can also sell bonds into the secondary market before they mature, if they choose to. I expect to see a very slowly shrinking balance sheet going forward. That won't depend so much on the Fed as it will on government fiscal policy. Recall the Fed is simply an independent Branch of the Treasury, the Fed works hand in glove with the Treasury on a daily basis. If our government gets involved in another very costly war, such as Iraq, which cost close to 4 trillion once interest and Vet benefits are factored in, there will be greater deficits to be covered by further borrowing. I'm personally very much opposed to this as our track record in these wars is nothing short of terrible at this point. For that reason alone, if my vote were going to count, which it isn't, I think I would vote for Sanders. You can do a great deal of good with four trillion U.S. dollars if you put them in the right place. I have always maintained it is a matter of choosing the right priorities.
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The graph is one those with the republican minds like to cite. I think those people suffer from sort of mental retardation.
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The source of the graph is the St. Louis FED but you are entitled to your prejudices.