Kind of steep

Supposedly we are breaking records for steepness in the curve, records going back to the 70s. Most of the money gets parked in the stock market, the S&P doing the vertical climb.  The issue here is whether Ben can pump the rest of QE2 money without breaking something.

What is likely to break?  For one thing there is no reason for corporations to expand, they make more money selling their paper.

According to Bloomberg, in the week ended January 14 S&P 500 insiders sold $163 million worth of stock in 54 separate transactions. They bought exactly $0.

The market is mostly driven by this high rate Fed channel, corporations are focused on that and have stretched out any long or medium term investments. Corporation operate in a channel with established capacity. If the short term rate is very active, the long term rate drops. As long as this continues, corporations will not hoard labor, will not expand hiring.

Bernanke has figured out that he fucked this up. But in his world he has locked himself in, he cannot change course for fear of his own position.Federal Reserve officials, who meet next week to ponder monetary policy, have signaled they aim to stick with Chairman Ben Bernanke's plan to buy $600 billion in long-term U.S. Treasury bonds. But they are struggling to find a coherent way to explain that—and other touchy issues they face in coming months—to the public.

WSJ
The entire article is focused on the mis communication problem, not the policy, except for thisone sentence:

With no immediate policy decision to make at its Jan. 26-27 meeting, the FOMC—the Fed governors in Washington and the presidents of the 12 regional Fed banks—is planning to focus on long-term growth prospects for the U.S. economy.

One can see the problem, what I show up above is that all the effects are to distract the markets from the long term growth problem. hen the Fed sees that it erred, what does it do? It relies on the old role as expectations generator, it can always blame the problem on the expectations channel.