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The following article was published in our article directory on August 22, 2010.
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U.S. to Return to Quantitative Easing

Article Category: Business Management

Author Name: Amanda xzh

U.S. local time on August 17, the Fed bought 2.552 billion U.S. dollars in one fell swoop the U.S. Treasury, in order to ensure the financial system the money supply, which is the Federal Reserve since the first time since October last year, holdings of government bonds. In order to eliminate the negative impact of financial crisis, in March last year to 10 month period, the Fed has purchased total of 300 billion U.S. dollars of treasury bonds to keep down the cost of borrowing. This is public opinion as the U.S. restart the "quantitative easing", the future trend of the U.S. economy is more complicated and confusing.

The Fed's move immediately drew the voices of doubt from all over the world, linked to the previously-baked series of lower than expected U.S. economic data, global investors can not help but to ask: "The U.S. economy is really very sick it? "

The face of concerns from all sides the sound of the Fed's executives were very "calm and collected," concedes that "the United States no disease." Minneapolis Federal Reserve Bank of Narayana tower that day, said, "the Fed's decision to allow the market to investors that the economic situation even worse than they expected, but I think this idea is unfounded. "tower explained," The reason why the Fed decided to holdings of U.S. Treasury bonds, long-term interest rates because of rapid decline leading to more and more people pay their mortgages, which led the Federal Reserve assets shrunk more than expected, in order to reverse this trend, the Fed decided to increase the purchase of long-term bonds. "

Meanwhile,tower that the U.S. economy is slowly recovering, this year's economic growth is expected at 2.5%, 3% next year.

Palliatives

However, the Fed this "clarification" can not completely dispel people's concerns. Currently, the U.S. financial markets are united by Western central banks lower interest rates to maintain adequate liquidity, rather than to restore market confidence. Thus, if the U.S. financial system is far from recovered.

Fed consultant Max Buluomier yesterday said the General Assembly in the world economy, the Fed reason to purchase long-term bonds, because in the beginning of the crisis, the Fed for the bailout to buy mortgage bonds has gradually expire, and the government economic stimulus is still can not quit, so the Fed choose to buy more low-risk assets to replace the mortgage-backed securities.

In an interview with Vice President of Economics, Fudan University Sun Li Jian, "newspaper" the image of an interview that, "Federal Reserve holdings of U.S. debt as if the financial market liquidity for a blood transfusion, but the problem is the hematopoietic function of U.S. financial institutions have been damaged, to With the Fed certainly can not repair the party power. "

Meanwhile, Li-Jian Sun also pointed out that the Federal Reserve holdings of government bonds is another meaning, "The recent Chinese holdings of U.S. Treasury bonds, which the United States in terms of bond prices is not a small blow, in order to avoid U.S. Treasury prices lower, and even other countries to follow suit China's holdings of action, with the holdings of the United States to express its confidence in U.S. Treasury prices. It is just like our A share market holdings of major shareholders of listed companies even behind the stock. "

"Indeed, the Federal Reserve holdings of U.S. debt will boost the role of the market to some extent, but this effect are a temporary solution." Jian Sun that "the United States to maintain market liquidity, to ensure that the rate of decline in bad loans of financial institutions, based on the real economy should stabilize by the United States, based on blood transfusion can not rely on the Fed made it through. "

Jian Sun also pointed out that only by Federal Reserve monetary policy on the "relaxation", "blood" to the U.S. economy is playing the "placebo", even if it knows that this is a temporary solution family on, it can not be "excessive."

Interest rates are still far away

Given the uncertainty of the U.S. economic outlook and the Fed's holdings of debt behavior, market expectations for U.S. interest rates more and more distant.

Buluomier said that the current Fed policy is maintained over time, lower interest rates, I believe in one to one and a half Zhezhong policy will not change. Buluomier pointed out that the U.S. economy, increasing pressure of deflation, deflation would be if the U.S. housing market and mortgage market severely affected. In this context, the U.S. economy is difficult to predict whether a secondary bottom.

Jian Sun said that the United States to raise interest rates to the following "medical tests": the United States, for unemployment rate has dropped, new home starts up, housing sales prices and other important data are showing a clear improvement for three consecutive months. If such data can be kept for six months, then the U.S. government will consider measures to raise interest rates, but it looked rather remote.

Meanwhile, the industry believes that the Fed can not calm down as investors worried about the U.S. economic outlook, an eye to global economic recovery in the U.S. economy may slow down the pace. In this regard, the world's hedge funds will be presented within a short time back to U.S. dollars, making the dollar stronger state. However, market participants believe that this is a dollar race long and short of PK, medium to long term, the weak state of the U.S. economy, causing the Fed to stimulate economic growth can not restart the loose monetary policy. U.S. trade deficit and the deterioration of the current expansion of the economic recovery prospects are that the road to hard dollar rose heavily.

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