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A slow economy, a slow QE2 | FOMC June 22, 2011

The Fed Policy statement underlined moderate growth in the Economy but a little too slow It today underwrote the US Economy for the $2800 bln as it enters a Hold period for the Economy on way to tightening rates if and when the Economy actually shows signs of heating up.

QE2 has already bloated the Fed Balance Sheet to $2800 bln and the Fed promise to keep that much amount in stimulus in the liquidity cycle ( to the limit of monetary policy) Treasuries did tick up but stay ranged between 2.96 and 2.97.

A run on Treasuries is unlikely as long as the stimulus is not overtly withdrawn. Any sales of securities by the Fed right now will be cycled back to the market in cash and securities. The Dollar’s immediate weakness will go towards keeping growth alive. The Fed was also more comfortable with inflation in the Policy statement as it expected Commodity inflation to cool down including dropping energy costs and there is a temporary situation in manufacturing due to disruptions in Japan

The Fed funds remain in the 0-0.25 percent range till the next meetings in August 9/September 20, 2011. The FOMC decision was unanimous. Bernanke’s press conference is about to begin as we publish this post. The Fed sees 2011 Core inflation at 1.5-1.8% and 2012 at 1.4% – 2%

From the Fed Policy statement updated over April 2011: “however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate..” 

Bernanke Speak  (“Monetary policy is not a panacea..”)

Snippets from the press meet:

1. We have no ..why this slower growth is persisting..the banks are weak(sic!) though commodity inflation is coming down ..

2. It is important we take strong action to reduce the budget deficit ..

3. I’ve been a long time proponent of having an Inflation Target..

4. We’ll conduct stress tests on the banks, we’ll take measures to strengthen money market mutual funds..

5. WE always conduct Cost Benefit Analyses and the same is being done for Capital Requirements..

 

Official portrait of Federal Reserve Chairman ...

Image via Wikipedia

2 comments on “A slow economy, a slow QE2 | FOMC June 22, 2011

  1. Christina Carabini
    June 28, 2011

    Yet recent concerns over inflation and oil prices are causing investors to turn skeptical about Korea again. We have been relatively positive on the Korean economy as indicated in our above-consensus GDP forecasts but are we too bullish?We do agree that inflation is on the upside and we are raising our 2008 CPI forecast from 3 to 4.3 . Nevertheless we expect inflation to peak in 3Q due to a slightly stronger KRW at 1 000 going forward peaking but not slowing crude oil prices slower food price hikes and on top of that a higher base effect from a year ago.

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  2. Pingback: Another FOMC ..Bernanke’s third press conference | FOMC, Nov 2, 2011 | The Banking and Strategy Initiative

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