he Federal Reserve first began its asset purchase program in the fall of 2008 to combat the financial crisis. Almost five years later, with slow GDP growth, high unemployment, and non-present inflation, the Fed is well into its third purchase program. Some investors fear these actions will spark higher inflation. We believe this shouldn’t be a concern — at least in the short run.  

Four years of quantitative easing and an essentially zero percent target rate have certainly had an impact on the bond markets and corporate cash management. We saw the Fed's balance sheet balloon to over $3 trillion in January, the ten-year Treasury note hit an all-time low of 1.39 percent in July of last year, and U.S. corporate bond issuance had a record year with over $1.3 trillion in new issuance. Now that we are two months into 2013, it might be worthwhile to take a look at how this year is shaping up in terms of corporate bond issuance and what that means for corporate cash investment portfolios.

As 2012 ends and 2013 begins reflection seeps in. There were many economic highlights and events this year that lead us to close the year on a hopeful note.

QE3, QE Infinity, Q-Eternity are just some of the expressions for what the Fed's latest round of stimulus has been dubbed. At the September FOMC meeting, policy makers embarked on further accommodation in the form of mortgage-backed security purchases in an effort to stimulate growth in the midst of persistently high unemployment, headwinds stemming from the European debt crisis and an imminent tightening of fiscal policy. The interesting point about QE3 is that it is open-ended. This means that the Fed will continue to purchase bonds or employ additional policy tools until the labor market improves "substantially" which then brings into question its forward guidance of mid-2015.

In recent months, the financial markets have been focusing on Europe, the Fed, the fiscal cliff, and even money market fund reforms. One topic that has not received much attention is the looming expiration of the unlimited guarantee for noninterest-bearing transaction deposit accounts, which was a mandate of section 343 of the Dodd-Frank Reform Bill.

On February 15, Moody's announced that it placed 114 European financial institutions in 16 European countries and another eight banks and securities firms on review for downgrade. Reasons cited by Moody's for the rating actions is a combination of the situation in Europe and/or the environment faced by Global Capital Market Intermediaries (GCMI).

As the first quarter of 2012 comes to an end, it is encouraging to review the noteworthy economic data of the quarter and discuss the Fed’s posturing. In an effort to fulfill its dual mandate of maximum employment and stable prices, the Fed has focused the last four years on promoting accommodative policy.