The Federal Reserve's stimulus policy is holding back a resurgence in U.S. mortgage bonds that carry no guarantee from the government, panelists at an industry conference said. About $12.5 billion tied to new loans has been issued this year, up from $3.5 billion in all of 2012. However, "it wouldn't be surprising to see very little if any" issuance for the rest of this year, said Peter Sack, a Credit Suisse Group managing director.
Since the 2010 passage of the Dodd-Frank Act, the Federal Reserve's powers have broadened to include oversight of systemically important financial institutions, which include commercial banks and insurers. The Fed also will oversee banks' compliance with Basel III rules once they are implemented. The new oversight duties will give the next Federal Reserve chairman more authority than predecessors.
Federal Reserve Chairman Ben Bernanke said he supports a proposal that the U.S. central bank announce numerical "thresholds" linking its monetary policies to unemployment and inflation. "It does have the advantage that it would help to distinguish between our anticipation for how the economy is going to evolve, and how we will react to those conditions," he said.
Blu Putnam, chief economist at CME Group, said U.S. economic activity in the near future likely will be driven by the Federal Reserve's policy of low interest rates. "The zero-interest-rate policy will be the driver for this year and next year, helping the economy do well, so you don't need a [quantitative easing] 3 or anything like that," Putnam said.
For the first time, the Federal Reserve's balance sheet exceeds $2 trillion as the central bank continues to lend huge sums of cash to financial institutions to keep short-term funding markets alive. The Fed's balance sheet grew from $1.953 trillion Oct. 29 to $2.058 trillion on Wednesday. Banks pulled back on direct borrowing from the Fed's discount window, but the industry remains dependent on the lender of last resort.