Fed be nimble, Fed be quick, Fed deploys another monetary fix
Posted by: in Stocks Money NewsFiled under: Good news, Economic data, Housing, Recession
The compelling question following the Fed’s action, in conjunction with the world’s other, major central banks, is whether it will work. Will it be enough to get the U.S. economy moving again?
And as is so often the case in economics, the answer depends on three unknown factors, a pair of economists told BloggingStocks Tuesday. (In an initial review, the market appeared to signal its approval of the Fed’s action, with investors sending the Dow 300 points higher to 12,156 in late Tuesday afternoon trading. )
New Fed tool: TSLF
First, the Fed’s new Term Securities Lending Facility should convince bank dealers that liquidity should not be an issue, economist David H. Wang said Tuesday. “No bank or bond dealer should fear that they won’t be able to find financing. That should improve bond market liquidity,” Wang said. In addition, the Fed’s willingness to swap U.S. Treasuries for mortgage-backed securities (MBS) should restore some trust — but by no means total trust — to the MBS market and help market participants price these securities, he said. The Fed’s accepting private mortgage debt collateral speaks directly to where the market is stressed the most, Wang said. However, if MBS’s are not pricing and trading, that would indicate continued concerns about liquidity, he said.
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