Archived IMT (2009.06.11)

Figuring out the extent of the Fed's next shopping spree may be the single most important dynamic in bond and currency markets today. Out of the $300 billion in planned treasury purchases, the Fed has bought $156.528 billion so far, and is likely to use the June FOMC meeting to signal the schedule of buying the remaining balance. With soaring bond yields shrugging the treasury purchases, there has been mixed reports as to whether the central bank will step up its purchases to a new target (dollar negative) or slow down the pace (less dollar positive). A year ago this year, Bernanke's dilemma was inflation vs. saving the financial system. He eventually realized he needed to opt for the latter. Today, the dilemma is between soaring yields in a recession vs. further liquidity flooding and a dollar crisis.