The Federal Reserve is cognizant of the potential costs of its unconventional policies, but the economic benefits from asset purchases are still far greater than the potential costs, Atlanta Fed President Dennis Lockhart told Reuters in an interview from his offices.
from The Great Debate:
Four years ago world leaders, meeting in the G20 crisis session, agreed they would all work to move from recession to growth and prosperity. They agreed to a global growth compact to be delivered by combining national growth targets with coordinated global interventions. It didn’t happen. After the $1 trillion stimulus of 2009, fiscal consolidation became the established order of the day, and so year after year millions have continued to endure unemployment and lower living standards.
A clutch of top UK economic forecasters on Thursday swept under the rug predictions for another 50 billion pounds of gilt purchases they thought would take place starting just in a few weeks.
During a Q&A at the Brookings Institution last week, former Fed Vice Chairman Donald Kohn asked new board member Jeremy Stein, formerly a Harvard professor, about the impression that the Fed’s quantitative easing was only helping wealthy people who benefit most from rising stocks.
In a historic shift in the way the Federal Reserve conducts monetary policy, the U.S. central bank last week announced an open-ended quantitative easing program where it has committed to continue buying assets until the country’s employment outlook improves substantially. Bank of America-Merrill Lynch credit analysts captured Wall Street’s reaction:
“Will he or won’t he?” That’s what investors, traders and policy-watchers in the financial markets are pondering, frozen at their terminals waiting to find out if Federal Reserve Chairman Ben Bernanke will persuade his colleagues to print more money this week.
1. Since the second phase of Operation Twist just got underway, “it would be strange to announce outright purchases of Treasury securities.” 2. Fed officials have publicly noted that continued purchases of long-term Treasury securities “might compromise the functioning of the Treasury market — and undermine the intended effects of the policy.” 3. San Francisco Fed President John Williams “directly advocated” mortgage purchases and Fed Vice Chair Janet Yellen has said that “beyond the Twist extension, ‘it’s more likely that [the FOMC] would do things that would take a different form.’” 4. “Purchases of mortgage-backed securities may be considered less controversial than Treasury bond purchases amidst the charged political environment, just prior to the presidential election.”
By Rahul Karunakar
The spread between 2- and 10-year U.S. Treasury yields will shrink to 180 basis points in a year according to the latest Reuters bonds poll – the narrowest margin since August 2008, the month before Lehman Brothers collapsed.
The Bank of England is finally catching a break. With Britain’s economy officially in recession, the BoE had been constrained from further monetary easing by a stubbornly high inflation rate. But as the global economy stumbles and Europe’s crisis rages unabated, UK price pressures may be giving way.