Low Rates better than QE2/3? 2013, without, increase, currently

thommo77

I’ve been thinking about this, and isn’t promising to keep rates at “near zero” until 2013 a form of stimulus which does what QE2 was supposed to do without the cost to the Fed while attacking the areas Bernanke wants to attack?
We can expect the two year to be pegged below 0.25% for quite a while and this depresses the five year (currently at 0.94%) which depresses the ten year (currently at 2.2%). The goal of QE2 was to lower long-term rates and increase risk-taking in order to spark the wealth effect and boost long-term confidence. saying you’ll keep rates at “near zero” for two years forces people further down the curve if they want risk-free that has a positive expected real return. hell you’d have to be in 10+ years right now if you wanted yield from fixed income that has any chance of having a positive real return. so now you have the short-end capped, the long-end overbought, where does new money go? well it’d have to go into the risk markets because do you really want to be buying a 30 year that has a chance of having a negative return over that time period?
i commend the Fed for this move and think its the best thing i’ve seen in my four year career…