Dudley again talking QE3

It of course remains to be seen what the FOMC decides to do, if anything, at the Dec 13th meeting but Fed Vice Chairman Dudley again is laying QE3 on the table. “I am deeply unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost.” “We could purchase more longer term financial assets…If additional asset purchases were deemed appropriate, it might make sense to do much of this in the MBS market. This would have a greater direct impact on the housing market and would be less likely to disrupt market functioning compared with further purchases in the Treasury market.” Currently, the average 30 yr mortgage rate is 4.02% according to bankrate.com, just 2 bps from multi decade lows. Notwithstanding this extraordinarily low rate, for those that can get it, Dudley is of the same mindset of Bernanke and Yellen on policy and it’s this extremely dovish trio that are calling the shots. In terms of the market, whether its noise of super committee standstill or something else, the moves today will be exaggerated due to SPX option expiration tomorrow where the open interest is large at the 1200 line.

Peter Boockvar

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