13 Sept 2012, The FOMC, in other words, The Fed, launched a third round of Quantitative Easing, an open-ended Quantitative Easing...
Fed sees exceptionally low rates through 2015
FOMC statement released:
Committee agreed to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month
Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.*
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.*
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.*
These actions, which together will increase the Committee's holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.*
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.*
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.*
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.
Was a third round of QE needed???
My answer??
QE is needed for stock market, but not needed for economy..
The QE, as explained by investopedia
Definition of 'Quantitative Easing'
A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.
Look at the Dollar Index. Did it help the dollar? US is a BUY-based economy. They have to buy goods from others. How would a depreciated dollar aid the ailing economy?
The quantitative easing came out because the interest rate is at the all time low, between 0 to 0.25%. The rationale for a low interest rate is to assist the banks to loan more money out so as to spur loans and spending/ The problem why lower interest rates are not helping, is because the banks are not lending!
The banks are holding foreclosed homes and they are looking to clear them off their books. Guess what they do? Refuse new home loans but approve loans if buyers were to purchase houses from the banks...
Another reason why the banks are not lending is because... it's FREE MONEY!
If you take a 0% interest money and dump it into risk free assets e.g Treasury bonds that yields you 2%. Would you have made 2%? They are banks.. Not a charity centre.
Guess why is the Fed purchasing bonds from the Treasury? Through Goldman Sachs and Goldman Sachs is charging the Fed for this service.
Let's look at economy after more than $1 Trillion dollars has been dumped into the economy.
Look at the employment rates... after 2 years of easing.... the unemployment rates were still above 8%.
Look at the housing market. The existing home sales and new home sales.. Did it improve?? I doubt so..
Look at manufacturing.. Why are the manufacturing dropping???
Why is QE3 needed in the stock market? Because... Mario Draghi pulled through their version of QE in the Eurozone... and just this week... Chancellor Merkel from Germany decides to join the ECB in their bond purchase. If Ben Bernanke is not coming out with the QE3, the market would have sold off...
the FOMC is nothing federal, they are banks making profit. Aren't they supposed to protect their long term holdings?? But at the expense of taxpayers money..
My dear friend David Caploe wrote..
'it will help Fed member banks CLEAR THEIR BOOKS of shit securities at TAXPAYERS' EXPENSE ... their "profile" looks better AND they become even MORE liquid ... so their stock price goes up ...
It (QEIII) has NOTHING to do with any long-term growth plan - just quick fixes for Bernanke / Fed's two most important clients: above all, the MEMBER BANKS and then the President ..."
No! These markets are going down and the economies are not doing well. Look at China, their production index has been heading south.. Look at Europe... Almost at the edge of splitting up...but... WHY IS THE US STOCK MARKET UP??!??!
Like what Jim Rogers said. This rally is a Fed rally. It will end very badly..
Stocks have hit multi-year highs recently but are due for selloff since the gains have not been based on fundamentals but rather loose Federal Reserve policies marked by liquidity injections into the economy that have artificially propped up markets, said noted international investor Jim Rogers.
Read more on Newsmax.com: Jim Rogers: This Stock Market Rally Will ‘End Terribly’
My view, let the market crash. Let the cycle repeat.
No comments:
Post a Comment