Game Changer! Why This Fed Decision Was a Huge Departure From Every Move The Fed Has Made Before

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 Ben Bernanke

By Joe Weisenthal

Here are the key paragraphs from today's Fed announcement ...

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

The Fed just changed the game.

Whereas in the past, the Fed always set a defined amount of Fed purchases, this time they're saying that the easing will continue until morale improves.

This is a major change.

They've now said to businesses and banks and everyone else that they will not let up and tighten conditions until things are much better.

If you haven't been paying attention, this is a move towards the hot new idea in monetary policy ideas.

In his paper, economist Michael Woodford wrote all about the power of pre-commitment, and its ability to shape expectations.

Furthermore, we should add that not only is this QE, the Fed is also talking about "other policy tools" that could be used.

This is a very big change.

For the full Fed announcement, see here >

For More on the QE Announcement from Business Insider


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jbluhm1951

The Fed has too much power. The markets will crash soon. The dollar will be worth less. Inflation will be coming regardless of the low interest rates. Do outrageous money moves and get unusual results. This Fed chairman will regret this last move.

September 17 2012 at 2:50 PM Report abuse rate up rate down Reply
alantatanka

Bernanke has served Bush and now obama very well. He is the very best thief in the business. Lets just give the Banks more money so they will begin loaning money. Haven't we already done that, just to have the Banks hoard it. Who can afford to take out a loan anymore anyway. If I had the money for a down payment on anything, I would put it away (not in a Bank) for the times ahead. I already hoard money, food, protection, medical supply and any other thing I can get my hands on. May not need it but what happens if I do?? We have to stop the Government from taking our money.

September 15 2012 at 9:00 PM Report abuse +1 rate up rate down Reply
1 reply to alantatanka's comment
bonedust68

Well said Alantatanka, I do the same too. Got to outsmart the devil, he is one smart bast$%*.

September 19 2012 at 6:42 PM Report abuse rate up rate down Reply
LucyXX12

I am no expert... but let's be honest here. Both Obama and Bush had their screw ups, and neither are perfect. Honestly, even if they had the best intentions, most politicians seem like they're in it for themselves. At least, that's the impression I've been given. They will say anything to be elected, and once elected, they either forget their promises, their good intentions go arwy, or they realize it's much harder to make one change they promised in their campaign than they thought. It seems to me that it's a vast combination of past presidents, congressmen, senators, banks, public and private institutions that caused the recession and dropping of our credit rating (not to mention the glass stegall act being removed, causing all sorts of opportunity for greed). Of course, the Dems and the Republicans would love to lay the blame on each other, but to me it seems like it's spread pretty even. If anyone has additional info that might clear some of this up for me though, I would appreciate it and be open to it. These are just my conclusions based on what I've witnessed so far.

September 15 2012 at 2:50 PM Report abuse +1 rate up rate down Reply
Hello Sean ;)

And now, because of Bernanke's actions the US has had it's credit rating lowered, again. Smooth move Bernanke, you saved the Wall Street buddies of Obama and sent the country down the river.

September 15 2012 at 2:10 PM Report abuse rate up rate down Reply
1 reply to Hello Sean ;)'s comment
CherMoeLin

Not hardly. Bernanke was put in the Fed by George Bush. The country hasn't flourished under his or any of the former Bush people's "efforts". Also, on the contrary, all negative financial happenings are all blamed on President Obama ... in fact every bad thing that happens in the world is blamed on Obama. They blame him for stuff that happened before he ever became President. And as far as Wall Street, you don't think they own the Republicans????? One only has to look at the goals of Romney and Ryan to take away Social Security and privatize it, etc., destroy Medicare as we know it and take away all our safety net programs. Everything they propose will help big business and the rich .... NOTHING for the poor or the middle class except more taxes to pay so the rich don't have to pay any. Even Romney's campaign buttons are MADE IN CHINA.

September 15 2012 at 2:20 PM Report abuse -2 rate up rate down Reply
1 reply to CherMoeLin's comment
bonedust68

Well actually the government itself should be privatized, oh yeah. It really is anyway! sh**, too late!

September 19 2012 at 6:46 PM Report abuse rate up rate down
cspinks2c

Biggest Obama bundler of all time ? Ben Bernanke

September 15 2012 at 1:51 PM Report abuse +3 rate up rate down Reply
1 reply to cspinks2c's comment
CherMoeLin

Appointed by George Bush, Einstein.

September 15 2012 at 2:20 PM Report abuse -3 rate up rate down Reply
1 reply to CherMoeLin's comment
huknu

Just to be clear:

"WASHINGTON — President Obama on Tuesday will nominate Ben S. Bernanke to a second term as chairman of the Federal Reserve, administration officials said. A top White House official said Mr. Obama had decided to keep Mr. Bernanke at the helm of the Fed because he had been bold and brilliant in his attempts to combat the financial crisis and the deep recession"

Just depends on which way the winds blowing this week as to who gets the blame or the glory

September 15 2012 at 2:36 PM Report abuse +2 rate up rate down
pmdsam9

jjjtttggg - The Federal Reserve has private and public components, you even said yourself that Bernanke was appointed by President Bush. The President also appoints the Board of Governors. That is 'government' stuff.

Congress enacted the Federal Reserve Bank.

It is NOT completely a private institution and has a lot to do with politics, just like Federal Judges as mentioned.

I find it interesting when some one uses so much vitriol and sarcasm about something that they themselves are misinformed about. It diminishes your whole argument which had some good points.

September 15 2012 at 1:46 PM Report abuse rate up rate down Reply
1 reply to pmdsam9's comment
jjjtttggg

I'm well aware of the history and functioning of the Fed. It has NO public "Components". Congress enacted it, but they no longer control it... and ... more to the point I was making... neither does the president. Read through the comments below and ask yourself how many of the commentors seem to understand that. It simply isn't a political institution. It absolutely IS a private institution. Yes, the governors and chairman are appointed by government, but they aren't then controlled by and historically haven't been beholden to government. Bernanke proves this point. He was appointed by a republican and now is being castigated as an Obama crony! What a joke. To be honest, I was only half trying to make an argument. My main point this go 'round was truly the sarcasm and vitriol. The comments in response to this articale display a level of ignorance and stupidity on the part of a majority of the commentors that pushes argument beyond my emotional grasp for the moment....

September 15 2012 at 2:06 PM Report abuse +1 rate up rate down Reply
1 reply to jjjtttggg's comment
bonedust68

Calm down now jjjtttggg, you are right! Now go to bed. zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz!

September 19 2012 at 6:48 PM Report abuse rate up rate down
jjjtttggg

@Susan and @Mark.... Seriously... How do you connect this article with Obama?!?!? Can you explain (without resorting to some sort of "man behind the curtain" conspiracy theory) how Obama can control the Fed? Do you even realise (or care) how stupid that sounds to anyone who takes the teeny bit of trouble required to gain even a basic understanding of how things actually work? Does your hatred of the man cloud your intellect that badly, or do you just lack intellect entirely?

September 15 2012 at 12:59 PM Report abuse +1 rate up rate down Reply
jjjtttggg

Are of you people really this stupid? "We can go broke faster"?!?!? "What's this going to cost the taxpayer?" There's no "we" in the Fed. The "taxpayer" isn't involved... AT ALL! As P8TNSDAD pointed out, the Fed is a private entity. It's a very powerful entity, but it's not "taxpayer" funded in any way whatsoever. That doesn't mean "we" aren't affected by what "they" do, but get it straight... the FED IS NOT THE GOVERNMENT!!! It has nothing to do with Obama. Obama has certainly continued to support Bernanke's running of the Federal reserve, but let's not forget that it was GWB who appointed him. Right or wrong, it just ISN'T a government entity!



Ask youselves this then... What MOTIVATES the Fed? If you think it has ANYTHING to do with politics, you're an idiot! They are gianormous BANK! They're motivated by the same thing every bank is motivated by... making money! To make money they need a healthier economy. Will what they're doing here work? I don't know, but pull your heads out of your politicized asses. It doesn't matter who is in the Whitehouse... we all need to hope and pray that it does.



What's that? ... . .. Oh?... Sorry, my mistake, I didn't realize you folks understand economics and monetary policy better than the Fed committee. My bad.... Puhlease!!!!



Look, I don't trust these guys any more than anybody else, not because I think I know anything they don't, but because ultimately they're really only looking to make themselves and their buddies richer, but if that means a healthier economy... which clearly THEY think it does... then I'll take it!

What the government needs to do is an entirely different matter, relating much more to who will benefit the most from a healthier economy and whether and how government FISCAL policy can or can't accelerate economic recovery. When it comes to these questions, I say again, pull your heads out of your politicized asses and look at what's actually happening. Look what the two opposing sides say they will do, and look at their track records. Do it openly and honestly, using your own brain and basing your thoughts on direct information, not the spin of Bill O'Reillies or Sean Hannities, or Ed Shultz or Rachel Maddow. If you still support Republicans after doing that, and you're not already wealthy.... Well, then sorry to say, and it's just one opinion, of course, but I think you're as dumb as a turnip!

PS - If you want some practical advice.... forget about Gold.... Get yourself into a 30 year fixed rate mortgage... when interest rates and inflation rates rise... and, yes, they will. You'll pay it back in inflated $. It's one of the ways inflation (as long as it doesn't get out of control) helps the economy. Fixed debt becomes "smaller" in real terms.... we need that! Once again... just one opinion. Government's role is to create an environment wherein wages keep up with that inflation. Which party do you think values that idea more?

September 15 2012 at 12:14 PM Report abuse +1 rate up rate down Reply
2 replies to jjjtttggg's comment
lizar50

Completely agree, people think the Fed is political or has a political agenda thanks to the media. These guys are hired like judges, long terms, greatly informed academics, without fear that an action will cost their job. I wouldn't necessarily the Fed is interested in profit per se since it returns any profits back to the treasury, but it doesn't have a strong interest in maintaining macroeconomic stability, like wages, prices, and rents.

September 15 2012 at 12:35 PM Report abuse rate up rate down Reply
huknu

Well, not exactly private. The government sets the salaries of the all the board members which include the chairman and Vice Chairman of the Fed. This does not happen in the private sector (Well, not yet anyway) Excess profits go back into the US Treasury. $79 million, I believe, last year. Again, that does not happen in the private sector.

And I try not to stereotype other voters. According to you, one has to either be rich or have their head up their ass (or both, I suppose) to vote Republican in this election. So is it fair to characterize Obama supporters as 2nd and 3rd generation welfare recipients or vapid hollywood celebrities? I think most voters lie somewhere in the middle of all these extremes. Everyone just has to wade thru all the BS from both parties to make a determination. Personally, I'm middle class, college educated in business and plan on voting for Romney. He is not my first choice and I don't agree with all of his views, but I'm just not ready for big government and all that it entails. (Incompetence and apathy (ever been to the DMV?) , corrruption and malfeasance (congress on a good day) Politics (Big interest groups will always have a congressperson or two in their pocket) We'll see what happens in Nov.

September 15 2012 at 4:19 PM Report abuse rate up rate down Reply
Susan

A quote from the article:

"The Fed just changed the game.

"Whereas in the past, the Fed always set a defined amount of Fed purchases, this time they're saying that the easing will continue until morale improves."

So tell me, all you geniuses who voted for O. What exactly is the meaning of "UNTIL MORALE IMPROVES"? It sort of sounds like saying, "We will beat you until you put a smile on your collective faces and bow down to your supreme leader. See the bottom of our boot coming for your head. Do as we say. You have no choice. Your freedom is gone."

Any one who votes for O in the upcoming election, assuming there is one, is dumb or crazy or both.

September 15 2012 at 12:09 PM Report abuse +1 rate up rate down Reply
Susan

Muslims don't believe in interest. So, baby boomers who voted for O and who have savings accounts - how do you like your interest income?

September 15 2012 at 12:02 PM Report abuse +2 rate up rate down Reply