QE3 is here, and it's pretty big.
They've announced a form of "open-ended" quantitative easing in which the central bank commits to "purchasing additional agency mortgage-backed securities at a pace of $40 billion per month."
But there's something much much much more important here than the numbers. It's the guidance:
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.
The key thing is that the Federal Reserve Open Market Committee is no longer saying that accommodative monetary policy is conditional on the recovery being weak. Instead, interest rates will stay low for a while even after the economy recovers.
Open-ended Quantitative Easing. It appears QE to Infinity is a reality.
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Why Krugman? Bernacke should it be... no?
ReplyDeleteKrugman has been pushing for this and criticizing the Fed for not doing this for a long time now.
ReplyDeleteWonder how gold is going to be manipulated now... Wonder what the next mega bank/brokerage to go will be... QE to infinity as Sinclair has been saying..
ReplyDeleteHaving lived through the US housing bubble, only to move here to live through another one, I can't say I'm happy about the Feds action although I realize it needs to be done to avoid deflation that is striking Europe right now. I think they need to let the housing collapse work itself out organically, so I'm not sure buying MBS' is the best idea. The problem is two fold in my mind. On one hand you have banks who can borrow at zero but aren't by my best guess lending any of their own money, they are gambling that money. Small businesses continue to struggle to get capital in light of this without betting the farm. On the other hand, you have large corporations flush with cash in their warchest that refuse to spend it, and when they do it's in huge acquisitions the benefit few.
ReplyDelete