FOMC Preview for Oct. 28-29 - Data Dependent and Patient
* An eighth and final cut in the size of the asset purchase program of $15 billion is a virtual certainty.
* Low expectations for a change in the "considerable time" wording of forward guidance.
* Likely Phildadelphia's Plosser will dissent for a third meeting in a row, Dallas' Fisher could repeat his dissent.
* No update to Summary of Economic Projections (SEP) or press briefing by Chair Yellen.
Silly Fed Accounting Quirk
Since January 2011 the Federal Reserve has included a line-item on its weekly balance sheet (H.4.1 Table 7) entitled Interest on Federal Reserve notes (IOFRN). This line-item represents an accrual of the Fed's profits each week, which are to be paid to the Treasury the very next week. In the week ended Oct 1 we witnessed some quirkiness in the IOFRN data.
Federal Reserve Research
Fed Policymakers' Profiles: A Few New Faces at the Table - Update
On Monday, September 22, the Philadelphia Fed announced the President Charles Plosser will retire as of March 1, 2015. The search is on for his successor. We do not anticipate that whomever succeeds Plosser will be significantly different in terms of approach to monetary policy. District Banks tend to select individuals who are of the same traditional approach to policy that fits in with the District's culture. In the case of Plosser -- who has been an advocate for a more formula-based approach to monetary policy and an opponent of calendar-based forward guidance -- we would not expect any radical departures.
Plosser is a voter on the FOMC in this rotation. He will move to non-voter status at the January 27-28, 2015 FOMC meeting. It is likely that his successor will be installed in time to attend the March 17-18, 2015 meeting.
Mortgage Focus: A Review of the Q2 Financial Accounts Data
--The latest data from the Fed showed that residential mortgage debt continued its protracted decline in the second quarter.
--The agencies continue to finance about 60% of outstanding total mortgage debt and 65% of outstanding first lien debt.
--The Fed's share of outstanding agency debt and MBS continued to increase, but we know that trend will end when the asset purchase program concludes.
--Banks and thrifts are still the largest shareholders of outstanding agency securities. However, recently banks have been acquiring more Treasuries than agencies.
Quarter-End ON RRP Craziness
In this note we review today's quarter-end ON RRP operation. This is the first such operation wherein the new $300 bln cap was binding. Despite a 0% stop-out rate on the offering, we do not necessarily regard today's operation as a message that the $300 bln cap is too low.
Federal Reserve Research