How Easy Is This Fed?
Cam Hui | Mar 13, 2012 03:47AM ET
As we wait for the announcement from the FOMC, the markets have been seeing a number of mixed signals from the Fed lately. Josh Brown thinks that Carmen Reinhart's theme of "financial repression", which she believes is here to stay [emphasis added]:
"As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt.
Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers.
In the past, other measures also included directed lending to the government by captive domestic entities (such as pension funds or banks), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter coordination between governments and banks, either explicitly through public ownership of some institutions or through heavy “moral suasion” by officials. "
If I am right about this theme about the Fed getting to give the patient another shot of adrenaline, then it would be regarded as short-term bullish for risky assets (though it may not do much longer term).
That`s why my inner trader is carefully scrutinizing the FOMC statement to watch for any change in language.
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