Pessimistic Economic Expectations And Will Continue The Quantitative Easing

By Christina Xia

The Fed announced its subsidiary Federal Open Market Committee on November 2 -3 minutes of the meeting on monetary policy. Minutes show that despite the current world economy is gradually emerging from the financial crisis in a critical period, but the U.S. domestic situation of high unemployment and deflation will continue to exist, the overall economy is unlikely to achieve rapid recovery.

During the meeting, members of the United States to be implemented to start the second round of the quantitative easing policy of a fierce debate, some members did not agree to bring the so-called interests of the QE2 that the Federal Reserve to inject more capital into the banking system will make future inflation rate risk. However, there are some members that the policy should be implemented more aggressive programs to promote U.S. economic upturn.

Pessimistic about the U.S. economy is expected to

Members of the 2010 U.S. gross domestic product growth forecast of 2.4% concentrated in a narrow range of 2.5%, significantly lower than the June forecast of 3.0% to 3.5%; and is expected to grow in 2011 3.6% 3.0% , slightly lower than the June forecast of 3.5% to 4.2%.

According to the U.S. Department of Commerce announced on November 23 revised third quarter GDP data, seasonally adjusted, three-quarter GDP annualized rate of 2.5%. Although several consecutive quarters of positive growth, but weak U.S. economic growth, 9.6% is still not enough to offset the negative impact of unemployment.

At this meeting, the Fed judge, the slow recovery of the U.S. economy or the end of 2011 the unemployment rate remained at 8.9 to 9.1 percent of the high. The judge was to judge than the worse in June, and then the Fed’s directors believe that the end of 2011, the unemployment rate fell to 8.3% or ~ 8.7% range.

Consistent with the poor employment situation, the Fed worries about inflation have not been completely eliminated. Members in attendance that the weak economy will rebound in inflation and weak, which means that inflation may be lower than the Federal Reserve will continue to target 2% of the control cases, this will continue until the end of 2013.

QE3 come?

The meeting showed differences mainly in the QE2 from above, but from 10 to 1 vote the final results, although some members questioned the effectiveness of quantitative easing and fears, but the deteriorating economic and employment situation within the Fed is still the most worry about things. The Fed now views in this regard is very consistent.

In view of the pessimistic expectations of future economic circumstances, this meeting showed the need for the Fed to consider a more radical economic stimulus package, but the meeting did not clear the content of specific economic stimulus package.

More radical so-called U.S. economic stimulus package is nothing more than that in the future will continue to accelerate the process of quantitative easing. It is difficult not to envisage in the future whether there will be more relaxed QE3 quantify this policy, thus releasing more liquidity with impunity.

Some members of the same participants do not agree QE2 and more radical economic stimulus package, they think that this could undermine the stability of prices, the global release of liquidity and an asset bubble.

However, most members believe that the dollar, coupled with the Fed’s policy of quantitative easing make asset prices more stable domestic economic environment will make the benefit a wide range.

Pacific Investment Management MohamedEl-Erian, chief executive, said the second round of the quantitative easing policy of the Federal Reserve will not completely solve the problems facing the U.S. economy, and will amplify the tension in the global currency markets, with domestic economic policy is expected to miss again, the Federal Reserve introduction of quantitative easing is more a matter of time.

Minutes of the meeting the majority of members supported the quantitative easing policy once again proved the need for U.S. economic recovery. Meanwhile, the U.S. economic recovery for the world economic recovery and China’s economic development is beneficial.

Quantitative easing policy of the Federal Reserve to take it is upset, 600 billion figure is the product of trial and error. However, this shows that the United States at least be able to assume responsibility for its 3 trillion to 5 trillion of toxic assets pay.

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