Political  Calculations

How do we know that the Fed pays attention to the things we write? Previously, commenting on the apparent lack of effect that the Fed's latest round of quantitative easing has had on stock prices, we observed:

1. The Fed is doing it wrong. In the two previous rounds of QE, the Fed purchased large quantities of U.S. Treasuries. So far in this round, the Fed is only purchasing Mortgage Backed Securities. The stock market just doesn't get the same bang for the buck as when the Fed buys up Treasuries, which acts to reduce long-term interest rates across a wider swath of the economy, which is really what helped boost stock prices in earlier rounds.

2. QE, as an effective policy, is running out of gas. The interest rates that the Fed might hope to lower in its QE programs started off at a much lower level, and a lot closer to their minimum zero level, than in its previous incarnations. With less room to maneuver, the Fed's actions just don't have the same oomph they once did.

And now, the Fed has announced that they've gotten the message and are going to start "doing it right" and also buy Treasury securities, which will give this latest generation of QE more "oomph". Interestingly, they've also announced the economic targets that must be satisfied before they will discontinue the plan. All together, that suggests to us that they're thinking the future for the economy in much of 2013 will be somewhat worse than other official sources are letting on....

It looks like that as far as the pace of layoffs in the U.S. is concerned, the impact of Hurricane Sandy lasted for just three weeks.

Closeup of Residual Distribution of Seasonally-Adjusted Initial Unemployment Insurance Claims Filed Each Week, 19 November 2011 through 1 December 2012

Political Calculations

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