Posts Tagged ‘federal reserve’
The Fed, Not Out of Ammo!
The Federal Reserve still has options, short of QE3, if it wants to encourage more lending. First, it can reduce to zero the rate of interest it pays banks on deposits held at the Fed. Second, it could sell short term Treasuries it holds and with the proceeds buy long term Treasuries. This would reduce…
Read MoreQuantitative Easing 3?
QE worked miracles by injecting massive liquidity into the economy in ’08 and ’09, and staved off a depression. While smaller, QE2 boosted equity prices and weakened the $US which boosted exports, raised commodity prices and headline inflation. If we get QE3, which is likely to be less successful than QE2, it’s because inflation’s receding,…
Read MoreWeak Growth, Low Rates
The output gap, the difference between what GDP is and what it could be, at 5.2% has never been this large this late in an economic recovery. Usually the gap has completely disappeared by the 2nd anniversary of the expansion which is why interest rates usually rise at that point. And, this is precisely why…
Read MoreBulging Balance Sheet
In the past 3 years, the Federal Reserve’s balance sheet has expanded by $1.5 trillion yet nominal GDP has managed to rise by only $500 billion. Moreover, the U.S. public debt has exploded by about $5 trillion over that same time frame. This means that while the USA is 244 years old, over 1/3 of…
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