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Bernanke & Co.'s Big Day

September 13, 2012 8:47 AM EDT
While Apple stole the show Wednesday, today is Fed Chairman Ben Bernanke's big day and his actions have much wider implications. The FOMC is scheduled to issue its policy statement today at 12:30PM ET following a two-day meeting.

Many expect Bernanke to throw caution to the wind and announce a new round of bond-buying and extend its timetable for how long interest rates will remain low. This would be in an effort to bolster an economy that the Fed views as growing and adding jobs much too slow.

At the Jackson Hole meeting at the end of August, Mr. Bernanke defended the Fed's prior unconventional monetary actions and talked about the benefit they've provided. He said data suggests the Fed's action raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred. Bernanke didn't explicitly state that additional easing was coming, but he surely hinted at it. Also recent FOMC minutes from the July 31-August 1 meeting showed that many members favored easing "fairly soon."

On past QE actions, the Fed implemented a $1.25 trillion mortgage-buying program through March 2010 and a $600 billion Treasury bond-buying program that lasted through June 2011. Currently the Fed is running Operation Twist, or selling shorter-dated Treasury securities in favor of longer-dated ones. They are purchasing $45 billion in long-term Treasuries each month through the twist program, funded by the sale of shorter-term Treasuries.

One idea being floated is to double the monthly bond buying to $90 billion, funding the additional buying by printing new money instead of recycling old money. The Fed could again go back to buying mortgages instead of Treasuries, where it fears it may be having to big of an impact. This program would effectively be QE3, although the size would be smaller than QE2 which was $75 billion per month and QE1 which was over $140 billion per month. The Fed could also make some adjustments to Operation Twist, by changing the amount or type of bonds it buys, by ending the program in favor of a new bond-buying program, or they could continue to run it, as is, in conjunction with a new mortgage-bond buying program.

The FOMC rate decision and policy statement at 12:30PM will be followed by a Bernanke press conference at 2:15PM ET.

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FOMC Minutes, Ben S. Bernanke, Federal Open Market Committee

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