Vladimír Urbánek (Kurzy.cz)
Markets  |  December 07, 2012 14:18:26

Exitový plan Fed will probably need to OVERWRITE

About a year and a half old "exitový" plan the Fed may need to be revised. According to the original concept was to start with the Fed selling bonds purchased around mid-2015 to the Fed's balance straightened to precrisis levels. U.S. Fed bond purchases but the pace does not slow down even the contrary. In monthly purchases at 40 mld.USD the assets the Federal Reserve begins near the 3 trillion dollars. Some estimates calculate the balance at the end of 2013 at 4 billion USD. In mid-2007, while it was around 869 mld.USD. Average in the decade before the crisis moved at 6.3% of GDP. To achieve such an average, it would fall from the current balance of about 2.86 to 0.995 trillion.

If applied to the original plan would mean that the pace of sales should be higher than originally estimated, which could be significantly risky. There is therefore voices after adjusting the original plan.

The "exit" in the first phase envisages that the Fed will stop "scroll" maturity and letting them gradually expirovat. This step alone now takes more time, because the average length of maturity is enabled by the Fed extended. Consequently, the Fed should begin to modify its outlook for interest rates to remain at zero, then it should proceed with upgrading, and eventually would have come to a number of direct sales held bonds before their maturity.

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