More quantitative easing is here. The Federal Reserve will increase purchases of mortgage-backed securities and agency debt by $340 billion by December 31st, 2012. From the FOMC statement:
The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year
More astounding is the promise to continue to make MBS purchases until the employment rate is acceptable.
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
The FOMC did some odd things in their future economic projections. Below is their table for September 2012. They lowered GDP for 2012 yet raised it for 2013. While they lowered GDP for this year, they kept the unemployment rate the same.
They also are planning on keeping the key interest rate at an effective zero all the way until 2015.
The Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Bernanke also gave a press conference where he literally promised even more quantitative easing than what has been announced until the economy really recovers. Many in the press questioned this and Bernanke implied they will continue even more quantitative easing until the unemployment rate declines. They want to see a general improvement in labor market conditions.
Bernanke seemed to acknowledge that quantitative easing is not the solution for jobs. Yet they seem to say we will continue to blast the economy with quantitative easing until you, Congress and you, employers, get your act together and start hiring some Americans.
While it appears Bernanke is acknowledging quantitative easing is not so effective at creating jobs, he also seems to be hoping confidence will be boosted so much, employers will finally start hiring Americans. Good luck with that, employers seem to want to hire anyone but an American.
Once again we will see more support for housing prices, which are still out of alignment with actual wages.
Bernanke once again warned on the Fiscal cliff and the CBO's projection that Congress, through inaction, will cause a recession. Bernanke warned if this happened the Fed simply doesn't have the tools to counter the economic shock.
Bernanke's attitude towards quantitative easing seemed to be some assistance vs. none, knowing it is Congress, this administration who really needs to act.
Most telling was a question from Fox News. The reporter seemed to accuse Bernanke of playing politics by enacting QE3 before the election. The reporter claimed this will help Obama and hurt Romney. This is an outrage and describes the real problem with our government. Instead of being concerned about the massive unemployment and what is in the national best interest, what will get people jobs, we have the primary concern being who will win the election. Isn't that just an outrage? Politicians care more about who obtains power than being responsible and enacting policy which will help the people who they were elected to govern. Think what you will about the Fed and their actions, but who can combat such political corruption and dereliction of duty?
Bernanke defends quantitative easing in his press conference opening remarks:
I’d like to briefly address three concerns that have been raised about the Federal Reserve’s accommodative monetary policy. The first is the notion that the Federal Reserve’s securities purchases are akin to fiscal spending. The second is that a policy of very low rates hurts savers. The third is that the Federal Reserve’s policies risk inflation down the road.
On the first concern, I want to emphasize that the Fed’s purchases of longer-term securities are not comparable to government spending. The Federal Reserve buys financial assets, not goods and services. Ultimately, the Federal Reserve will normalize its balance sheet by selling these financial assets back into the market or by allowing them to mature. In the interim, the Federal Reserve’s earnings from its holdings of securities are remitted to the Treasury. In fact, the odds are strong that the Fed’s asset purchase programs, both through their net interest earnings and by strengthening the overall economy, will help reduce rather than increase the federal deficit and debt.
On the second concern, my colleagues and I are very much aware that holders of interest-bearing assets, such as certificates of deposit, are receiving very low returns. But low interest rates also support the value of many other assets that Americans own, such as homes and businesses large and small. Indeed, in general, healthy investment returns cannot be sustained in a weak economy, and of course it is difficult to save for retirement or other goals without the income from a job. Thus, while low interest rates do impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates help promote.
And finally, on inflation: Inflation has varied in recent years with swings in global food and fuel prices caused by a range of factors, such as drought and geopolitical tensions. However, overall inflation has averaged very close to the Committee’s goal of2 percent per year for quite a few years now, and a variety of measures show that longer-term inflation expectations are quite stable. The Federal Reserve is fully committed to both sides of its mandate—to price stability as well as to maximum employment—and it has both the tools and the will to act at the appropriate time to avoid any emerging threat to price stability.
Bernanke also said the missing piston from the economic engine is residential real estate and the Federal Reserve, with their tools, are not a panacea for all economic ills.
One of the most powerful actions Bernanke has done is to at least acknowledge the severity of the jobs crisis. Strange, but Bernanke is one of the few public figures who at least describes how bad it really is and what the employment crisis really means. More amazing, the press who attended the conference didn't even ask a question on the below remarks and how the United States is literally laying to waste her own skilled labor by refusing to employ those Americans.
The employment situation, however, remains a grave concern. While the economy appears to be on a path of moderate recovery, it isn’t growing fast enough to make significant progress reducing the unemployment rate. Fewer than half of the 8 million jobs lost in the recession have been restored. And, at 8.1 percent, the unemployment rate is nearly unchanged since the beginning of the year and is well above normal levels.
The weak job market should concern every American. High unemployment imposes hardship on millions of people, and it entails a tremendous waste of human skills and talents. Five million Americans have been unemployed for more than six months, and millions more have left the labor force—many of them doubtless because they have given up on finding suitable work. As the skills of the long-term unemployed atrophy and as their connections to the labor market wither, they may find it increasingly difficult to get good jobs, to their and their families’ cost, of course, but also to the detriment of our nation’s productive potential.