FOMC meeting flash: Bernanke does the twist
The Federal Reserve has just announced, after an unusual delay, that it will undertake a programme to flatten the yield curve, the famous Operation Twist, as was expected by most analysts ahead of this week’s FOMC meeting.
Overview:
Not only does Ben Bernanke signal yet again that he has no clue – or even worse no potent weapons – to combat the second round of double dip fears in little over a year. With the Fed launching Operation Twist Bernanke furthermore runs the risk of arriving too late at the party with a solution for the second time in 10 months as his QE2 programme last November came so late that the economy had long rebounded and the programme fuelled a massive commodity rally instead, which ultimately weighed on U.S. consumers in the first half of this year and forced the economy into a halt yet again.
It is time to allow the economy to heal on its own, which means going the old fashioned way. In other words, we need to rebuild capital reserves, which in turn implies that savings need to be encouraged not opposed. Sadly, there is no hope of Bernanke heeding our advice, so prepare for another Fed programme and let us hope that it is only useless and not outright harmful.
Mads Koefoed
Article by Mads Koefoed a Macro Strategist at Saxo Bank. Mads’ primary focus is macroeconomics and equities, and he is responsible for the bank’s Macro Forecast model. He has a master’s degree in economics from the University of Copenhagen. Prior to joining Saxo Bank in 2009, Mads spent two years with Danske Capital, where he worked in the Danish Equities team. At Saxo Bank Mads primarily concentrates on macroeconomic topics and develops and maintains macroeconomic models based on econometrics. Mads regularly publishes comments and analysis on macroeconomic topics and is responsible for the bank’s macroeconomic models and the Saxo Fundamental FX Portfolio. Read more of Mads’ articles and commentary on Trading Floor (http://www.tradingfloor.com), the home of Saxo Bank’s trading commentary, financial research.
Saxo Bank is an online trading and investment specialist, enabling clients to trade Forex , CFDs , Stocks, Futures, Options and other derivatives, as well as providing portfolio management via SaxoWebTrader and SaxoTrader, the leading online trading platforms.