The Fed Is Falling Behind On QE 2

The Fed started off a bit slowly in providing its promised $600 bil. of additional funds to the
financial system. It added only $11 bil. in the month of Jan. and is now well behind a sensible
straight line funding approach to meeting the $600 bil. target by 6/30/11. The Fed may simply
have followed a traditional pattern of either freezing or draining liquidity after the holiday
season, but if they are not planning to welch on the deal, I doubt there is a good reason for
holding off on stepping up the funding process straightaway. Otherwise, further delay could
add unnecessary volatility to the commodities, forex and capital markets. For example, further
delay in program execution could invite the major dealers to buy bonds and short stocks etc.,
only to reverse these trades when the Fed steps up to the plate again. With the global markets
now nervous about Egypt and oil transport security, it would be wise for the Fed to step in
this week with a significant round of Treasuries purchases.