The Banking and Strategy Initiative

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Ben Bernanke Speaks: US and UK join hands to go down the unlimited QE lane

Making news this Wednesday as the FOMC meeting gets over is the continuing of the Federal Reserve along new NGDP targets or in this particular US cae an unemployment target of 6.5% to continue the $45B open ended QE program. Of course the $45 B as it is just for buying and the MBS program is over would be effective in harnessing durattion to keep getting Fixed Income investors some Capital gains as yields are maintained by longer Duration purchases.

Other than that the Fed Statement( here), as expected, added a substitute QE3 program of $40 B per moonth to together achieve the new targets of unemployment while keeping inflation within 0.5% of the 2% target which it did not consider anointing at this time because the /unemployment target can be achieved easily enough statistically ( though the Fed did not intend it to be) and may trigger enough optimism for the Fed to be able to get America off the wagon in not more than a few months. It also means the Fed Committee does not need to limit the sunset of low interest rates till 2014 or 2015 or any such date as the NGDP targets will be achieved as a pre condition to the QE programa nd the low rates being discontinued

One does not find it strange also that projected inflation targets will be used to guide the Economic engine as TIPS are the main anchor of valid measurement of expectations, though Economists at some of the bank desks already think of using it as an I Bomb. Interestingly if after this US Economic growth actually manages to stay under 2.5% we will be very disappointed indeed. This same analysis will be updated live after the Fed Chairman starts the presser in an hour.

Addressing the Press:

    • Bernanke notes that he is concerned about more than 5 million unemployed having been so more than 6 months
    • Bernanke reiterates that the program’s buying levels going forward will depend on the Economic commentary every month (Could the Fed really increase US Balance sheet by another $1 T, likely just over $500B)
    • Monetary policy becomes more transparent to the public and predctable as it is now tied to these outcomes
    • Longer term projections of unemployment are still 5.2% to 6.0% and the Fed “will move away from an accommodative policy stance” before the Economy reaches full employment ( after 2015)
    • The Committee will specifically measure the performance of the Unemployment rate in terms of real increase in employment and working hours vis a vis the number of discouraged workers and other such elements (current weighin heavily in the quick gains) in monitoring and funding the Economy against this target
    • Economic Recovery and Job creation while maintaining Price stability
English: US Whig poster showing unemployment i...

English: US Whig poster showing unemployment in 1837 (Photo credit: Wikipedia)

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