Rising bond yields reveal Bernanke QE converges with growth

Tighten Policy

A number of policy makers are concerned the magnitude of the Fed’s balance sheet could impair its efforts to tighten policy when necessary, according to the minutes.

“We have a cost-benefit type of approach” in weighing whether to push on with asset purchases, Bernanke said in Ann Arbor.

Not all of Bernanke’s colleagues believe quantitative easing is worth the risks. Kansas City Fed President Esther George has signaled she may dissent today from any pledge to continue bond buying, said Diane Swonk, chief economist for Mesirow Financial Holdings Inc. in Chicago.

George and St. Louis Fed President James Bullard, who’s also voiced concern about the risks from quantitative easing, gained policy votes this year as part of an annual rotation among Fed regional bank presidents on the FOMC.

Record Stimulus

George said in a Jan. 10 speech she is concerned record stimulus may cause imbalances in financial markets, citing how prices of bonds, agricultural land and high-yield and leveraged loans are near historic highs.

“It’s a very aggressive policy, and it is making me a little bit nervous that we’re over-committing to easy policy,” Bullard said the same day in Madison, Wisconsin.

Their concerns probably won’t derail a pledge today by the FOMC to maintain the pace of securities purchases, Swonk said. “The Fed will pursue steady policy with a continued expansion of the balance sheet.”

The housing market is recovering as the Fed presses on with record easing. Combined sales of new and previously owned properties last year rose 9.9%, according to data compiled by Bloomberg, for the biggest annual gain since 1998 and an indication residential real estate is helping drive growth.

Home prices in 20 U.S. cities rose in the 12 months to November by the most in more than six years. The S&P/Case- Shiller index of property values increased 5.5% from November 2011, the biggest year-over-year gain since August 2006, according to data released yesterday.

“The housing market began a steady rebound” last year, Chief Executive Officer John G. Stumpf of Wells Fargo & Co., the largest U.S. home lender, said in a conference call with analysts and investors on Jan. 11. “There is no doubt that a corner was turned, which is a real positive for our economy.”

Bloomberg News

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