Era of cheap money is over ?

[GURPS]

U.S. Stocks Drop as Fed’s Yellen Outlines Stimulus Exit



U.S. stocks fell for the first time in three days as Federal Reserve Chair Janet Yellen said the central bank’s stimulus program could end this fall and benchmark interest rates could rise six months later.

Walt Disney Co., General Electric Co. and Boeing Co. lost at least 1.4 percent to lead the Dow (INDU) Jones Industrial Average lower. Consolidated Edison Inc. led utilities to the biggest decline among 10 groups in the Standard & Poor’s 500 Index. Newmont Mining Corp. lost 3 percent as gold tumbled the most in six weeks after the Fed’s decision to reduce asset purchases.

The S&P 500 slipped 0.6 percent to 1,860.77 at 4 p.m. in New York. The Dow slid 114.02 points, or 0.7 percent, to 16,222.17. About 6.7 billion shares changed hands in the U.S., in line with the three-month average.

“The pace of tightening, once the Fed starts tightening, is a little bit faster than thought before and I think that’s why we’re getting this market reaction,”John Canally, an economic strategist at LPL Financial Corp., said in a phone interview from Boston. His firm oversees about $438.4 billion. “Being reminded that the Fed will eventually raise rates is getting traders’ attention.”

 

[tommyjo]

Way to go! You post yesterday's news! Right on top of things aren't ya?

Just wondering did you read the FOMC statement? Obviously not.

The Fed didn't "decide" to reduce asset purchases yesterday...it is continuing the reduction it began last December. Did you know that or did you just cut and paste this because it paints the US in a negative light?

 

[Tilted]

U.S. Stocks Drop as Fed’s Yellen Outlines Stimulus Exit

...

I think markets overreacted to Chairwoman Yellen's comments yesterday and read too much into her specifying 6 months as the potential time period between the ending of quantitative easing and the beginning of rates increases. Markets in general seemed today to have thought better of their initial reactions to her comments and reversed their knee-jerk moves.

I don't think she meant to create the impression that the FOMC was likely to start raising rates sooner than had generally been expected. So, I don't think we've much reason today to think we're closer to the end of cheap money than we would have thought we were on Tuesday.

 

[Tilted]

Way to go! You post yesterday's news! Right on top of things aren't ya?

Just wondering did you read the FOMC statement? Obviously not.

The Fed didn't "decide" to reduce asset purchases yesterday...it is continuing the reduction it began last December. Did you know that or did you just cut and paste this because it paints the US in a negative light?

What roiled markets yesterday afternoon wasn't so much the announced decision to further reduce the pace of asset purchases as it was Ms. Yellen's comments in her news conference after the FOMC's statement was released. In particular, it was her attempt to be more specific about what "for a considerable time" might mean. That term is used in the FOMC's statement to refer to how long it anticipates keeping the federal funds rate at current levels after QE ends. She said that it "probably means something on the order of around six months." That's perhaps a little less than many had expected, and it rattled markets a bit. That was news, and not really old news.

While I'm here though, and for the record, the FOMC did indeed decide to reduce (net) asset purchases yesterday (i.e at the FOMC meeting that took place over the last 2 days, March 18th and 19th). Yes that decision was widely expected, and yes it was the third in a string of reductions that respectively have been announced after the last 3 FOMC meetings, but it was not a certainty and it was not something that the FOMC had previously committed to.

To review: In December the FOMC "decided" that it would reduce combined (net new) agency MBS and longer-term Treasury purchases from $85 billion per month to $75 billion per month starting in January. It also said (emphasis added by me):

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

Then in January the FOMC "decided" that it would further reduce asset purchases from $75 billion per month to $65 billion per month starting in February. It also repeated the exact same 'if... will likely... however' guidance regarding what it might do in the future. And then yesterday it announced that it had "decided" to further reduce asset purchases from $65 billion per month to $55 billion per month starting in April.

So, I have to wonder if you had read the FOMC statement which you asked GURPS if he read. It would seem not. If you had, then you may realize that I didn't place the word decided in quotes above because I'm generally reckless with my use of quotation marks. Rather, I did that because that's the very word that the FOMC statement itself uses to describe what was done at each of those meetings. To the point immediately at issue here, from the FOMC statement for the March 18th-19th, 2014 meeting (emphasis added by me again):

In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.

Again, so that we're clear: It was a decision that was largely expected. Nevertheless, it was a decision that was made at the March FOMC meeting. They even voted on it at the March meeting (as part of the entire monetary policy decision, of course).

The point being, the article quoted in the OP appropriately described the recent reduction in asset purchases as "the Fed's decision" - i.e., as a decision it had just made.

 

[LibertyBeacon]

Yellin spooked the market with some not-very-well-thought out words.

I don't think we can say the era of cheap money is over until asset purchases end. Let's not get carried away here.

I'm not changing my asset allocation yet.

 

[GURPS]

Way to go! You post yesterday's news! Right on top of things aren't ya?

do you know how to be anything but a condescending a$$hole