Courtesy of Bruce Krasting.
On the IOER and Hilsenrath
Bernanke has to do something this week. Most pundits are suggesting it will be more LSAPs (QE). I have trouble with this scenario. To be of any benefit, a new QE would have to be for $600Bn. If QE3 were to be only a paltry $200Bn, it would be received very poorly. I don’t see Ben shooting off a pop-gun this week. He would be better off doing nothing, than something that will fall flat. I think he knows that.
There is also the issue that there is no justification for more QE right now. We are not in an emergency, stocks are at four year highs and there really are negatives to a policy of perpetual ZIRP. Also, a big splashy QE would be perceived as being very Pro-Obama. Taking sides in a national election is not something the Fed really wants to do. Republicans tend to have very long memories.
Extending the ZIRP language for another few years is idiotic. It is a promise that can’t and won’t be met. It also has zero value to the current economy. Extending the language is a ho-hummer that will accomplish nothing other than to demonstrate that the Fed is out of arrows.
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