Primary Dealers Saw Fed’s Confusing Strategy Reducing QE Impact

Primary Dealers Saw Fed’s Confusing Strategy Reducing QE Impact

The 21 primary dealers that trade securities directly with the Federal Reserve Bank of New York, said that confusion about the central bank’s intentions for its bond-buying program is reducing the policy’s effectiveness.

The dealers’ views were shared with the New York Fed in a survey of primary dealers that the Federal Open Market Committee reviewed at their April 30-May 1 meeting. A diversity of Fed speakers expressing different views has left the primary dealers unsure of the central bank’s intentions, according to the survey results released today by the New York Fed.

“Some dealers noted that the dispersion of views expressed by FOMC participants as to how the FOMC would make decisions regarding the future pace of asset purchases has decreased clarity around the program,” the survey said. “Of these dealers, several suggested that the differing views on monetary policy may reduce the policy’s effectiveness.”Fed officials have yet to reach consensus on when or how to dial back their $85 billion monthly bond-purchase program designed to spur growth and lower unemployment. Officials have publicly aired varying views on when the purchases should be dialed back and ended.

Philadelphia Fed President Charles Plosser has called for reducing the pace of stimulus as soon as the Fed’s next meeting in June, while St. Louis Fed President James Bullard said earlier this week the purchases should continue. The New York Fed’s William C. Dudley said he needs three to four months to assess if the economy is weathering federal budget cuts.

Rate Effectiveness

Asked to rate the effectiveness of the Fed’s communication on a scale of 1 to 5, with 5 being very effective, four primary dealers gave the Fed a mark of 2 and 10 gave the Fed a mark of 3. Only one institution said communications had been very effective.

The primary dealers include divisions of some of the world’s most sophisticated financial institutions such as Goldman, Sachs & Co., Deutsche Bank Securities Inc. and UBS Securities LLC. The survey does not identify which respondent provided which answer. As recently as December, 16 of the 21 institutions gave the Fed a score of 4 or 5 on the clarity of their communications.

The median respondent to the survey said the central bank’s $85 billion monthly purchase program will end in the second quarter of 2014. The program is aimed at lowering the 7.5 percent unemployment rate until the labor market has “improved substantially.”

To contact the reporters on this story: Joshua Zumbrun in Washington at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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