Fed to press ahead with bond buying
The Fed
ReutersFederal Reserve Chairman Ben Bernanke
Fed officials will gather in Washington on Tuesday and Wednesday. A statement following the meeting is expected at 2:15 p.m. Eastern.
While economists expect the economy to improve as the year goes on, that is still just a forecast.
The U.S. economy faces significant risks, avoiding damage from the bitter dispute in Washington over fiscal policy. “For now, [Fed officials] are still not comfortable stepping back,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago.
WASHINGTON (MarketWatch) — The Federal Reserve is going to
maintain its monetary policy of aggressive easing at the end of its two-day
meeting Wednesday, and will keep it in place until there are signs of a
broad-based expansion, economists said.
“The Fed will maintain a steady foot on the gas pedal,” said Julia Coronado,
chief economist for North America at BNP Paribas.Fed officials will gather in Washington on Tuesday and Wednesday. A statement following the meeting is expected at 2:15 p.m. Eastern.
While economists expect the economy to improve as the year goes on, that is still just a forecast.
The U.S. economy faces significant risks, avoiding damage from the bitter dispute in Washington over fiscal policy. “For now, [Fed officials] are still not comfortable stepping back,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago.
In December, the Fed pulled out all the stops to bolster the economy. They
added $45 billion of monthly Treasury purchases to the existing QE3 program to
buy $40 billion in mortgage debt a month. The purchase program has no end date.
Read:
Fed sets jobless, inflation targets.
The central bank also adopted a new policy that tied the first increase in short-term interest rates to the outlook for unemployment, saying rates would stay low until the jobless rate falls below 6.5% as long as inflation stays tame.
Economists believe that these policies will remain firmly in place this week.
Minutes of the December Fed meeting in December did spark fear in the market that the bond-purchase program could end sooner than expected, as some Fed officials thought the program could end in June and others thought it could end by December. Read: Fed sees bond buying ending this year.
But Fed watchers said that too much was made of the debate in the minutes. Jan Hatzius chief economist for global investment at Goldman Sachs, said the minutes “tend to mislead at times.”
Although Bernanke is less autocratic than many of his predecessors, it will ultimately be the chairman and his key allies that decide how long QE3 will last, Hatzius added, and these officials have not tipped their hand.
According to the minutes, several unnamed officials “emphasized the need to for considerable policy accommodation but did not state a specific time frame or total for purchases.” Hatzius noted that Bernanke was probably in this camp.
The confusion over the timing of QE3 just shows that “markets and central banks operate on separate clocks,” said Neil Dutta, head of economics at Renaissance Macro Research in New York. “It is bizarre to think that having just embarked on an open-ended easing program, the Fed would now do a 180-degree turn and tighten.”
The central bank also adopted a new policy that tied the first increase in short-term interest rates to the outlook for unemployment, saying rates would stay low until the jobless rate falls below 6.5% as long as inflation stays tame.
Economists believe that these policies will remain firmly in place this week.
Minutes of the December Fed meeting in December did spark fear in the market that the bond-purchase program could end sooner than expected, as some Fed officials thought the program could end in June and others thought it could end by December. Read: Fed sees bond buying ending this year.
But Fed watchers said that too much was made of the debate in the minutes. Jan Hatzius chief economist for global investment at Goldman Sachs, said the minutes “tend to mislead at times.”
Although Bernanke is less autocratic than many of his predecessors, it will ultimately be the chairman and his key allies that decide how long QE3 will last, Hatzius added, and these officials have not tipped their hand.
According to the minutes, several unnamed officials “emphasized the need to for considerable policy accommodation but did not state a specific time frame or total for purchases.” Hatzius noted that Bernanke was probably in this camp.
The confusion over the timing of QE3 just shows that “markets and central banks operate on separate clocks,” said Neil Dutta, head of economics at Renaissance Macro Research in New York. “It is bizarre to think that having just embarked on an open-ended easing program, the Fed would now do a 180-degree turn and tighten.”
No comments:
Post a Comment