The Federal Reserve won’t exit any time soon from unprecedented bond-buying under its quantitative- easing stimulus strategy, even as the world’s biggest economy shows signs of recovery, according to Stephen Stanley of Pierpont Securities LLC.
“This is as dovish a Fed as we have ever seen, and they don’t intend to seriously consider tapering or winding down quantitative easing for quite some time,” Stanley, Pierpont’s chief economist, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee.
The central bank, which opens a two-day policy meeting tomorrow, is purchasing $85 billion a month of Treasury and mortgage debt to support the economy. Chairman Ben S. Bernanke said in a speech this month the Fed will keep buying bonds until there’s “substantial improvement” in the labor market.
Treasuries climbed today, pushing 10-year yields down the most in three weeks, as speculation flared that Europe’s debt crisis will worsen after euro-area finance ministers sought to tax bank deposits in Cyprus as part of a bailout. U.S. government securities have lost 0.5 percent this month, according to Bank of America Merrill Lynch data, as a report showed the U.S. unemployment rate dropped to the lowest since December 2008.
Benchmark 10-year yields fell three basis points, or 0.03 percentage point, to 1.96 percent today in New York. They dropped earlier as much as nine basis points, the biggest intraday slide since Feb. 25. They climbed on March 8 to 2.08 percent, an 11-month high, after a Labor Department report.
“The U.S. is well ahead of Europe in terms of resolving our issues, and today just underscores that,” Stamford, Connecticut-based Stanley said. “If Cyprus can tax bank depositors, is Italy or Spain or someone like that going to do it going forward?”
Fed policy makers reiterated after their January policy meeting that their key interest rate will stay at almost zero as long as unemployment is above 6.5 percent and inflation is projected at no more than 2.5 percent. The jobless rate fell to 7.7 percent in February, down from more than 8 percent before September, data showed March 8. The consumer price index was 2 percent in February from a year earlier, another government report showed on March 15.
“The old saying of don’t fight the Fed, well in this case, the Fed is whacking the market over the head with a double sledgehammer -- both short end and long end,” Stanley said. “Chairman Bernanke and company are determined to err on the side of overstaying their welcome, rather than tightening prematurely, and they are going to want to convey that to markets.”
To contact the editor responsible for this story: Dave Liedtka at email@example.com