US Monetary Policy: Winding & Unwinding QE May 11, 218 Dr. Edward Yardeni 516-972-7683 eyardeni@ Debbie Johnson 48-664-1333 djohnson@ Mali Quintana 48-664-1333 aquintana@ Please visit our sites at www. blog. thinking outside the box
Table Of Contents Table Of Contents 1-6 May 11, 218 / Winding & Unwinding QE www.
5 4 Figure 1. 5 4 4 4 4 4 3 3 2 2 2 Total Assets US Treasuries + Agency Debt + MBS 28 29 21 211 212 213 214 215 216 217 218 219 2 2 2 2 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Figure 2. 2 2 2 1 1 US Treasury Securities Agency Debt + MBS MBS 28 29 21 211 212 213 214 215 216 217 218 219 1 1 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Page 1 / May 11, 218 / Winding & Unwinding QE www.
15 Figure 3. MATURITY DISTRIBUTION OF US TREASURY SECURITIES HELD BY THE FEDERAL RESERVE (billion dollars) 15 1 1 Over 1 Years (615) 5 to 1 Years (34) 1 to 5 Years (168) 1 Year Or Less (47.5) 5 5 28 29 21 211 212 213 214 215 216 217 218 219 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Source: Federal Reserve Board, H.1 (Table 2). 24 22 2 18 16 Figure 4. MATURITY DISTRIBUTION OF MORTGAGE-BACK SECURITIES HELD BY THE FEDERAL RESERVE (billion dollars) 24 22 2 18 16 14 12 1 Over 1 Years (175) Under 1 Years (4) 14 12 1 8 8 6 6 4 4 2 2 28 29 21 211 212 213 214 215 216 217 218 219 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Source: Federal Reserve Board, H.1 (Table 2). Page 2 / May 11, 218 / Winding & Unwinding QE www.
5 4.5 4 Figure 5. US TREASURY 1-YEAR BOND YIELD (percent) 5 4.5 4 3.5 3.5 3 5/1 3 2.5 2.5 1.5 1.5 5.5 5 4.5 4 3.5 3 2.5 1.5.5 -.5-28 29 21 211 212 213 214 215 216 217 218 219 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Figure 6. YIELD CURVE* (percent) 28 29 21 211 212 213 214 215 216 217 218 219 5/1 5.5 5 4.5 4 3.5 3 2.5 1.5.5 -.5 - * Ten-year Treasury yield less federal funds rate. Note: QE1 (announced 11/25/8) = Fed buys $4tn in mortgage securities. QE2 (announced 11/3/1) = Fed buys $6bn in Treasuries. QE3 (announced 9/13/12) = Fed buys $4bn/month in mortgage securities (to infinity and beyond). QE3 extended (announced 12/12/12) = Fed buys $45bn/month in Treasuries. Source: Board of Governors of the Federal Reserve System and the Conference Board. Page 3 / May 11, 218 / Winding & Unwinding QE www.
3 28 26 24 22 2 18 16 14 12 1 8 6 5 4 4 4 3 Figure 7. S&P 5 INDEX & QE S&P 5 Index US Treasuries + Agency Debt + MBS 28 29 21 211 212 213 214 215 216 217 218 219 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Source: Federal Reserve Board and Standard & Poor s. Figure 8. 5/1 5 5 4 4 4 4 4 3 3 3 3 2 2 2 1 1 5 4 4 4 3 2 2 US Treasuries + Agency Debt + MBS Announced Tapering 2 2 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Page 4 / May 11, 218 / Winding & Unwinding QE www.
-1 Figure 9. FED S ANNOUNCED BALANCE SHEET TAPERING (billion dollars) -1 1 2 Total (5) Treasuries (3) MBS (2) 1 2 3 3 4 4 5 5 6 217 218 219 22 221 222 223 224 6-1 Figure 1. FED S ANNOUNCED BALANCE SHEET TAPERING (cumulative since October 217, trillion dollars) -1 1 1 2 2 3 4 Total (4.1) Treasuries (3.9) MBS (2) 3 4 5 217 218 219 22 221 222 223 224 5 Page 5 / May 11, 218 / Winding & Unwinding QE www.
3 3 2 2 2 1 1 Figure 11. US Treasuries Announced Tapering 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 3 3 2 2 2 1 1 2 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Figure 12. 2 1 1 1 Mortgage-Backed Securities Announced Tapering 1 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 223 224 Note: QE1 (11/25/8) = Fed starts buying $4tn in mortgage securities. QE1 expanded (3/16/29) = Fed starts buying $3bn in Treasuries. Page 6 / May 11, 218 / Winding & Unwinding QE www.
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