|
Today, the
Federal Open Market Committee did what most analysts were expecting and
embarked on another round of easing.
"Fed
Announces Additional Monetary Stimulus" (MoneyWatch)
The Federal
Reserve's announcement today that is launching a third round of quantitative
easing validated widely held expectations that the central bank would provide
more monetary stimulus in an effort to speed the economic recovery.
The Fed said it
will purchase $40 billion a month in mortgage-backed securities and extended
its guidance on interest rates. Rates will stay low through mid 2015 instead of 2014, the bank said. The additional
Fed easing, along with its intention to continue reinvesting the proceeds
from principal payments from its holdings of financial assets,
will increase its inventory of securities by approximately $85 billion each
month through the end of the year. These actions, which are more aggressive
than many analysts expected, "should put downward pressure on
longer-term interest rates, support mortgage markets, and help to make
broader financial conditions more accommodative," according to a Fed
statement.
They also
reported that they were adjusting their economic outlook:
"Fed
Cuts 2012 Growth Forecast, Raises Next 2 Years" (Associated
Press)
The Federal
Reserve has lowered its growth forecast for this year but is more optimistic
about the next two years. The brighter outlook likely reflects a series of
bold stimulus measures that the Fed launched Thursday aimed at boosting the
sluggish economy.
In its updated
forecasts, the Fed said it now expects growth to be no stronger than 2
percent this year. That’s down from June’s forecast for as much
as 2.4 percent growth. It’s also not much better than the weak 1.7
percent annual growth rate the government reported for the April-June
quarter.
The Fed said it
expects growth to accelerate next year to as much as 3 percent, up from its
June forecast of as much as 2.8 percent. For 2014, growth will range between
3 percent and 3.8 percent, the Fed predicts.
So, let me get
this straight.
On the one
hand, the Fed is saying that further monetary accommodation will make a real
difference even though the latest Duke
University/CFO magazine Global Business Outlook Survey
makes it clear that easier money won't lead businesses to initiate or expand
investment plans.
On the other
hand, the Fed announced another round of quantitative easing because they
believe the economy is not on the right trajectory, and yet they are raising
their economic growth estimates for the next two years.
I can't be only
one who thinks there is something wrong with this picture -- right?
Michael J. Panzner
|
