Wednesday, November 3, 2010

QE2 = $600 Billion in Long Term Treasury Securities Purchases

The Federal Reserve has announced that it will purchase $600 billion of long term Treasury securities between now and the end of the second quarter of 2011.

This is  monthly rate of $74 billion (or an annual rate of $888 billion)

Hoening voted against QE2.

Below is the full statement of the Federal Open Market Committee:

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy
$600 billion between now and the second quarter of 2011, in our view is highly inflationary and leaves no consideration for the likelihood that there will be a multipler growth in M2 of the $600 billion. Buy assets, Bernanke is about to destroy the dollar.


  1. Anything in the announcements about where these securities will be purchased from (primary or secondary market)?

  2. Even higher w/ QE Lite:

    "Taken together, the Desk anticipates conducting $850 to $900 billion of purchases of longer-term Treasury securities through the end of the second quarter. This would result in an average purchase pace of roughly $110 billion per month, representing about $75 billion per month associated with additional purchases and roughly $35 billion per month associated with reinvestment purchases."

    Also of note is the 35% SOMA cap is "temporarily lifted" and FRBNY will start publishing its purchase prices (PD subsidy rate) on a monthly basis. It's a bone they've thrown (and it will be a misleading one at that to the Fed's benefit), but it is a bone that would not have been thrown at all were it not for Ron Paul. Incidentally, Paul's rumored to chair the monetary subcommittee. Can't wait.

  3. All QE purchases take place in the secondary market. The only purchases in the primary market will be to replace maturing Treasury securities of like kind, but that has already been the case for years.