Fed Watch: "It's not about interest rates yet"

From Tim Duy:

St. Louis Fed President James Bullard is delivering a pretty clear message. In his view, policy for the foreseeable future is about altering the rate of asset purchases, not interest rates. This will be a challenging new ocean for Fed Watchers to navigate. Will the Fed scale up asset purchase by $25 billion? $50 billion? Hold steady? Sell $25 billion back into the markets? Fun, fun, fun.

What I find interesting is that, initially, when the Fed entered quantitative easing (or qualitative easing if you prefer to call it that way - I personally believe it's not what the Fed buys but how much of anything it buys), they decided to start paying interest on excess reserves. The goal was to be able to eventually raise rates without having to scale back the Fed's balance sheet.

Look where we are today: banks are criticized for not lending out their excess reserves and the Fed is talking about managing policy using its long term assets before acting on short term rates.

Links 7/1/10

There have just been too many interesting pieces in the last few days for me to quote them all on this blog, so for once my dear readers, you are going to have to read it all (trust me it's worth it):

• Bill Gross: Let's Get Fisical, also: Time's interview
  
• Tim Duy: Fed Watch: Out of the gate with a bang
  
• a sell signal from Mark Hulbert: Bullishness now at dangerous levels
• From The Pragmatic Capitalist: The ultimate guide to 2010 investment predictions and outlooks

Bloomberg links: Fed Watch

Fed Faces Biggest Blow to Authority, Independence in Dodd Banking Measure The Federal Reserve faces the biggest blows to its authority and independence in five decades under legislation championed by its lead overseer in the U.S. Senate.

Fed Officials Say Recovery Will Be Slow as Unemployment Hampers Spending The U.S. economy will be slow to recover from the deepest recession since the 1930s as rising unemployment curbs consumer spending, Federal Reserve officials said.

Fed's Lockhart Says Banks' Commercial Real Estate Losses to Slow Recovery Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy will probably recover slowly from the deepest recession since the 1930s because of rising bank losses, especially in commercial real estate.