US news. US Federal Reserve System has finished the program of 600 billion dollars US Treasuries purchase, which is referred to in press as the second round of “quantitative easing” (QE2).
FRS is currently ready to take steps to ease monetary policy further if the slow rate of US economy growth remains, and inflation risks get weaker. This was announced by the FRS Chairman Ben Bernanke in a semiannual report before the Committee of Financial Services of US House of Representatives. "The possibility remains that the recent economic weakness may prove more persistent than expected and the deflationary risks might reemerge, implying a need for additional policy support," said B. Bernanke in his statement, published by the Federal Reserve. FRS head indicated that Central Bank possessed the resources for such support, although the use of some possible means will bear experimental character. According to B. Bernanke, in order to improve financial conditions further, Federal Reserve could start providing more explicit guidance about the period over which FRS intends to keep the current level of the federal funds rate and the balance sheet on its balance. Currently, FRS only indicates that the rate will remain at an extremely low level “for a lasting period”. Another option is to initiate more securities, such as US treasuries, purchase, which is in fact the third round of “quantitative easing” program (QE3). FRS could also reduce the rate of interest it pays to banks on their reserves (this rate currently amounts to 0.25%). “Of course, our experience with these policies remains relatively limited, and employing them would entail potential risks and costs,” let slip B. Bernanke. At the same time, FRS head assumes just the opposite course of events, in which case the economic condition will warrant a move toward less-accommodative policy. Federal Reserve System has already had a careful consideration of the main elements of its strategy in normalization of monetary policy, which presupposes shrinking of FRS balance sheet and increasing the federal funds rate, when economic conditions warrant. “I do not think that FRS can suggest something radically new,” admits a senior economist of Economic Outlook Group Bernard Baumol, “The main motive of B. Bernanke’s public speech was the fact that QE3 program can be spoken of beforehand. He has given a hint that Federal Reserve will consider the possibility of the third round of “quantitative easing” only on condition that the conditions of labour market will considerably worsen or if economy appears on the point of recession and is under a threat of deflation.” One day earlier FRS protocols were published. In these protocols bankers’ opinions split: some supported new monetary policy easing, others were their opponents, by highlighting inflation risks. Different point of view of the meeting’s participants are also preconditioned by the fact that US unemployment reports, which are published every month, show extremely negative tendency; namely, a rapid fall of workforce demand from employers. If at the beginning of 2011 companies would on a monthly basis employ 215 thousand people more people than fire, then in May this number lowered to 25 thousand people and to 18 thousand people in June. In this reference, the general unemployment rate during the first summer month has reached the maximum since the beginning of 2011 level of 9.2%.
Despite such data, FRS does not strive for filling economy with money, as this will entail inflation outbreak, which will only worsen the situation.
According to analytics of Exchange Trade Department of MF Academy, US government is facing a controversial problem, which it is trying to solve by all possible means. US national debt is currently at the point of technical default, and FRS is ready to take any possible measures in order to stabilize the situation. That is why, QE3 program is quite a real variant. If the market is filled up with money supply again, it will have to grow no matter what all other political and economic factors are.
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