Saw this on marketwatch.com:QuoteA group of banks that advise the Federal Reserve has complained about the central bank's asset purchase program, saying it has "created systemic financial risks and potential structural problems" for financial institutions..."The Fed's aggressive purchases of 15-year and 30-year MBS have depressed yields for the 'bread and butter' investment in most bank portfolios; banks seeking additional yield have had to turn to investment options with longer durations, lower liquidity, and/or higher credit risk," the bankers told the Fed, according to the minutes of the meeting, released by the Fed on Friday...The bankers seemed lukewarm at best about the Fed's $85 billion-per-month asset purchase program, saying it provided some support for a slow recovery but wondered whether it was the right policy to boost growth and employment."While some believe monetary policy may not be accommodative enough in light of current government fiscal policy, others believe that constant injections of new reserves have not returned the economy to the vibrant upbeat model it used to be and that current monetary policy is ineffective," the minutes show...And after buying so many mortgage-backed securities over the past five years, the Fed "may now be perceived as integral to the housing finance system."This took place on May 17. On May 22, Bernanke was defensive about the contributions of QE, but said they might reduce QE in the next few meetings. QuoteIf the data supports it, "[the Fed] could take a step down in the next two meetings," Bernanke told Congressman Kevin Brady, who asked if the Fed's asset purchases could end before Labor Day. Within seconds, bond and equity markets, which had rallied strongly, took a sharp turn to the downside.Of course this surprised bond traders, with annual inflation at 2.0%, 1.5%, 1.1% through April. Has Bernanke concluded that QE does not work as envisioned, or does he defer to bankers, or was his mind somewhere else at that moment, or what?

Whatever this thing is, it had ticked up pretty good until today:

I know Lockhart and Williams or whoever has been saying low inflation gives plenty of room to keep buying bonds until August or September. But remember: The discount rate is tied to inflation, whereas QE is tied to the benefits outweighing the costs (with something like 7.1% unemployment being a floor). It could very well be that Bernanke wants to stop buying mortgages ASAP, because the whole thing is admittedly pretty weird, and house prices are not exactly weak.Is there a benefit to creating ever higher home prices? Is there a cost? It could be argued the benefit has been mostly used up, whereas the cost is on the rise.I might go back and read those minutes. It is pretty fucking strange to think that the Fed suddenly felt it was their job to buy mortgages.

And on to the ECB. I guess they would rather lend money to SME's to hire people than see politicians buying their votes as unemployed. I am no expert on ECB communications. But they have higher odds of being smart than other central banks, so we will hear come Thursday.

Here is a nice Fed mind-reading challenge. Today there was an article on Bloomberg presenting the view that Treasury buys will be reduced ahead of mortgagesQuoteWhen Federal Reserve policy makers start to curb $85 billion in monthly bond buying, possibly before the end of the year, the last thing they want to do is spoil the nascent U.S. housing recovery. That means the Fed may concentrate first on trimming purchases of Treasuries, while continuing to buy mortgage bonds to keep a lid on interest rates for home loans.I take a different view. I think Bernanke clearly wants to taper. As he has said nothing but taper is coming quite consistently lately. Hilsenrath pointed this out on CNBC today. And Bernanke clearly wants low long-term interest rates. Because every time bonds go down, the Fed comes out with statements designed to move prices back up. Like yesterday afternoon, when he hit interest rates like a nail with a hammer.I have not read the full transcript, but I have not seen any Fed headlines about mortgages lately, or about the failure of low rates to translate into low mortgage rates. In fact mortgage rates have shot up, and refinancings have gone way down. And Bernanke has not attacked this in the headlines.If Bernanke wants to taper so much, it is because he takes seriously this idea that the market is distorted by all his bond buying. Some call it bubble risks. Others view different problems with it. I pointed out in the original post how bankers claimed it was screwing up the housing-finance industry. If he wants to reduce these risks, the first thing he can do is withdraw from mortgage finance, and let the market wean itself off his printing press.Distortions and bubble risks are much greater when you take the bizarre step of interfering with a specific market. Bernanke wants to keep interest rates low, but stop doing weird stuff. Buying mortgages is weird. Way weirder than buying Treasuries. So I believe taper will come with equal reductions in mortgage and Treasury purchases, or greater reductions in mortgage purchases. The only way Treasuries would see a greater reduction than mortgages, is if he wanted to put them on some sort of parallel path. So if he reduced them both to $35 billion, that would be down $10 billion for Treasuries, and only down $5 billion for mortgages.

Bernanke Q&A coming up in Congress, hitting that interest-rate nail, going for reduced pace of dangerous QE and low long rates at the same time:Q: Do you think tapering could result in a fast rise in interest rates or other economic shocks?A: I think the recent rise in interest rates has been a bit overdone. There is always the possibility when rates rise faster than economic data suggests, that it could influence borrowing activity and lead to a slowdown.Q: Do you think the housing market is on a firm footing?A: Yes, I believe we have achieved a lot of progress in the last few months. There are no longer risks to the economy or the banking system related to mortgage liquidity.Q: Is there is risk of bubbles or economic imbalances if QE goes on for too long?A: Yes, and that is one reason why, at some point, you might say the benefits no longer exceed the costs, and the pace of purchases can begin to be reduced, if the economic data supports it.Q: At what point would you say the economy has gotten back to normal, and where do you see the labor market at that point, compared to where it was before the crisis?A: We would like to see a lot more progress in the labor market before any sort of tightening. And it is also necessary to maintain inflation expectations, which have remained steady to this point. So there are a lot of different factors at play in why we see certain measures of hiring and unemployment where they are. But I think it is safe to say the economy is beginning to move back towards what we believe is a sustainable long-term rate of growth. But let me reiterate, whether we see 6.5% unemployment in 2014 or something else, we expect to remain accommodative, in our effort to keep borrowing costs low and continue to support the recovery, FOR A VERY EXTENDED PERIOD OF TIME.Q: Okay, so you expect what has been this trend of long-term interest rates to stay low?A: Yes, that is our goal, to support the economic recovery, by keeping interest rates low for a very long time. And again, I said I think recent rises in interest rates have been a bit overdone, given the firm anchor of inflation expectations and the moderate pace of economic developments. But in any case, we would like to see lower interest rates at the long end of the curve, we intend to keep rates low for a very long time, and would like to see more progress in the labor market.

QuoteOriginally posted by: farmerBernanke Q&A coming up in Congress, hitting that interest-rate nail, going for reduced pace of dangerous QE and low long rates at the same timeShoot and score: Bond yields dive on Bernanke advance transcript. Went into the news up 4% on the day, came out of the news up 18% on the day.

And gave it all back.Not because he killed me with the September word - that was after my second window. But because my damn yen system immediately got long USDJPY at the close of the first window when it was not supposed to. Come on, we are betting on yields in freefall! I corrected it (sort of), and got back short 30 pips later at the low.If my system accidentally got short euros after the first window, that would be a lucky error. But those type of errors seem to run at about 1 in 5, lol...Who else is having this much fun? Post it up...

Non-voting hawk Richmond Fed Lacker:Quote"First of all we should end the monthly purchases of mortgage bonds as quickly as possible," Lacker said in the interview. It was not the central bank's role to give any sector preferential support, he said.