WEDNESDAY DECEMBER 16, 2009

Still searching for an exit strategy

The Fed's FOMC is meeting today and will release its announcement on interest rates at 2:15PM.  Very few economists think there will be any change in interest rates.  What everyone will be watching for is any sign of an exit strategy from the Fed's easy money policy.  Will words such as "extraordinary" and "extended" disappear from the statement?  Will the Fed tell us how they plan to liquidate the $1 TRILLION in mortgage-backed securities that it owns on its balance sheet?  Unfortunately, probably not.

I know I risk sounding like the boy who cried wolf, but the implications of the massive government spending and easy monetary policy are scary.  Yes, inflation seems to be dead in the here and now.  But eventually the markets will begin to raise rates for the Fed.  Back in the late 1970's, bond traders were known as bond vigilantes.  Unless the Fed starts to give some indication that they have an exit strategy, the bond vigilantes may return.  Long-term interest rates may begin to rise whether the Fed wants them to or not.

POSTED AT 1899-12-30 08:45:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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