thought whenever the repubs pwn both chambers of congress and a dem is in the white house, the stock market goes up an avg of 25%/yr for 2yrs?
what do you mean the Fed will reinvest?
reinvest what?
thought QEII is done?
The FED now owns trillions of debt with the money it printed up. The original idea was that when that debt matured, that the FED would take it off their books and wind down their balance sheet.
ie) Fed prints 100million to buy 2yr Treasuries. Fed now owns 100million of that and their balance sheet goes up 100million. At end of 2 years the Treasury pays the FED the 100million principle on the "loan". The FED says, "Well since we printed this money, we'll now unprint it and take it off our books". Net effect is that the FED printed the 100million, earned interest on the debt they bought with the 100million, but they finally remove the 100million from existence when the debt they bought matures and is paid back and the FED removes it from their balance sheet.
What the FED is doing now is when the debt on it's 4 Trillion balance sheet matures and is owed to the FED, the FED is taking that money and reinvesting it into Treasuries, so their balance sheet is not winding down.
Right now what we effectively have is the treasury rolling over zero interest rate loans from the FED (zero interest due to FED remitting interest it earns back to the treasury). AKA monetizing the debt for anyone who doesn't fall prey to the BS out of government propagandists.
The FED bought a large amount of short term treasury debt, so there is going to be plenty of reinvesting from the FED as that debt matures. QE 1 was sold on the idea the FED would wind down it's balance sheet (at the time 800billion) after it ballooned it up towards 2trillion with money printing.
As national debt climbs the effect of that reinvesting will become relatively less pronounced vs rest of the market, though it is unlikely that FED balance sheet will ever wind down to anywhere near where it was before it undertook QE which was really just a clever way to monetize national debt and some other things.
Cliffs: New normal is ultra low interest rates, it looks like this is going to be semi permanent going forward as everything indicates rates can not be let to rise, ie) low growth.