Skip to comments.Yellen: Fed To Keep Treasury and Mortgage Rates Low Even AFTER Targets Met
Posted on 02/12/2013 8:14:35 AM PST by whitedog57
Federal Reserve Vice Chairman Janet Yellen signaled stimulus may outlast the Feds bond purchases, saying the central bank has the option to hold interest rates near zero even after reaching near-term targets for inflation or unemployment. When one of these thresholds is crossed, action is possible but not assured, she said in a speech to the AFL-CIO in Washington.
In other words, The Fed may continue QEing even after the unemployment target is met and inflation exceeds the target rate.
Inflation, depending on how it is measured, either near the target or far above it.
Todays JOLTS Job Openings Report was below the expectation of 3700 and printed at 3617. Notice that the Job Openings have remained pretty much the same over the past year.
The 10 year Treasury remains at low levels after falling since its peak in September 1981.
Mortgage rates remain near an all-time low.
So Janet Yellens forecast of continued ZIRP policies means that mortgage rates will continue to remain low for some time.
Of course, the invisible hand of the free market may have other plans.
Bread is now $3.50 a loaf and gas is $3.50 per gallon. Ben Bernanke and Ms. Yellen must not be aware of the inflation that is making life very difficult for the middle class.
They’re keeping rates low because they know the targets are not really met. Rates are not going up for a long while.
I suspect the game is to set things up so the current smoke-and-mirrors economy stays afloat just until the end of the Ubama regime and then collapses under its own weight for the next one.
“Bread is now $3.50 a loaf and gas is $3.50 per gallon. Ben Bernanke and Ms. Yellen must not be aware of the inflation that is making life very difficult for the middle class.”
What do they care? They’ve got their gated communities, armed guards, and private planes to wisk them off to a remote island when the time comes.
They don't care about inflation, and they don't care about investors. All they care about is the rate that the Treasury has to pay to borrow (create) money.
The Treasury is broke and our credit is in such a sorry state that we cannot sell enough bonds to cover our spending, not at sub-inflation rates anyway. That is why the Fed is creating all of this imaginary money. They are purchasing bonds in order to keep the interest rates low.
Of course private lenders won't put their money at risk for such pitifully low rates, so the capital market is frozen.
The day that the Fed allows interest rates to rise is the day that the U.S. Treasury implodes. The Treasury has been doing the equivalent of rolling principal from one high rate credit card to another, paying just the low transfer cost and then doing it again before the grace period ends.
We can't pay the 2% interest now, wait unit it is 5%, 6%, 8% or 15%. We have created the perfect formula for double digit inflation, and that will drive double digit bond interest. At 15% the interest on our debt will take every dime of our revenue.
When times are tough, an individual or family taps their savings. Negative real interest rates tap the accumulated savings of the nation. We’re all one big family, whether we like it or not. /S
Two things are going on at the FED:
1. regulatory capture - the FED is run by bankers for bankers. Right now their ZIRP is only helping bankers. Despite the fact that the FEDs balance sheet has nearly tripled it only accounts for 15% or so of the broadest measure of money. Bank money is 85% and they’re not lending. Why should they when they can meet Basel III requirements and profit on “risk-free” US Bonds.
2. RE - they’re hoping to jigger RE long enough to work out all the foreclosures. But, since the above policy is choking off the market and everyone knows when interest rates rise RE prices will fall who wants to buy?
Hedge funds do. They’ve got access to cheap money. Otherwise the RE market is dead. Had we just allowed these bums to fail, lose their billions and be the lender of last resort the market would have cleared already and we’d be into the 4th year of real growth.
How many times does government have to fail before people get it?