Wednesday September 22, 2010 - 12:39:33 GMT
Share This Story
Foreign Exchange Analytics - www.fxa.com
Fed Locked and Loaded on QE2FOMC statement, I believe, was an unabashed rationale for more quantitative easing top to bottom. It couched its economic assessment in terms of its dual mandates â€“ full employment and price stability â€“ and then proceeded to downgrade assessments (upped risks) to both. The economy is not growing fast enough to prevent disinflation from potentially becoming deflation nor is it going fast enough to make any significant headway on reducing unemployment.
The only question I have is why the Fed did not announce the start of QE2 today based on this assessment and that probably has more to do with Bernankeâ€™s styleâ€¦this policy option is highly contentious and he is a nice guyâ€¦he wants time to debate the how, what and how much (more) before laying down the law. I did not get any sense that more data are needed to make a case for more easing. Policy is too tight and needs to be loosened and the desired way to do this is via asset purchases (portfolio balance approach where the channel is from the quantity and mix of securities the Fed buys or stock view and not the pace of purchases of securities or flow view). What is important is type of securities and amounts not rate of purchases and hence the size of the balance sheetâ€¦this indirectly encourages shifts in portfolio preference in the private sector as investors reach out the risk curve for yield and these funds find their way to private sector for investment and consumption.
I doubt even more mixed economic data between now and early November (next FOMC) will change the dynamic for deploying QE2. Moreover, fiscal policy channel is expiring â€“ used up and not likely to be renewed and Bush tax cuts have an outside chance of expiring entirely which would be a fiscal tightening. Moderating core inflation (see August core inflation decline on annual basis), signs of weakness in housing and elevated unemployment all in place when growth assumptions are being revised down is all Bernanke needs to deploy QE2. The fuse is burning. I think there is urgency here.
Are there guarantees it will work? Hardly. But one has to think QE and fiscal stimulus did lots to prevent a depression. Abandoning counter-cyclical policy for Austrian creative destruction is not an optionâ€¦markets are still broken and not a place to turn to for full clearing function without paying an unacceptably high price.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."