Fed Asks Dealers to Estimate Size of Debt Purchases

Oct. 28 (Bloomberg) -- The Federal Reserve asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth.

The New York Fed survey, obtained by Bloomberg News, asks about expectations for the initial size of any new program of debt purchases and the time over which it would be completed. It also asks firms how often they anticipate the Fed will re- evaluate the program, and to estimate its ultimate size.

With their benchmark interest rate near zero, policy makers meet Nov. 2-3 to consider steps to boost an economy that’s growing too slowly to reduce unemployment near a 26-year high. Financial-market participants are focusing on the size, timing and maturities of likely purchases aimed at lowering long-term rates, with estimates reaching $1 trillion or more.

“If they buy too much, I think there’s a real chance that rates are going to rise because people are worried about inflation,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “If they don’t buy much, they’re not going to have a market impact.”

William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, set expectations of about $500 billion in initial buying, a figure he used in an Oct. 1 speech.

Investor Concern

“What the market wants to hear is that the Fed is going to buy $1 trillion” of Treasuries, said Joseph Lavorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Concerns that it might be less is causing investors to worry about how deep and broad this program is going to be.”

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aex03i59FdA0&pos=1

Insane. Read : Dear investment banks, how much money do you need in order to destroy the USD ? Print money you crazy central bankers. I will be the first one to sell your treasury and treasury bond futures into oblivion ! You will pray that you have not let go this tsunami! The whole hedge fund world is waiting for this decision to give you a lesson...

 

+1

The Bill Gross Ponzi Scheme comments helps balance fears. When someone with his stature calls game over for the trend, it's probably accurate. The Fed can't fix everything. When we're lucky they seem to be able to kill the monsters they help create in a timely manor. Sometimes they don't. Exactly how they are going to "unwind" this monetary accommodation remains on of the biggest fears out there (IMHO). When things go against them and their constituency, I wouldn't be surprised to see the CFTC step in to limit speculative short selling in financial instruments. No matter how you slice this story, it doesn't look like a happy ending.