The Fed Is Hard Pressed For Further Easing.

With the European debt crisis fermented, the global economy is facing two risks of recession and market expectations. Federal Reserve There will be a new stimulus policy after the 20-21 day interest conference in September. Observers here believe that, given the current economic situation in the US has not yet deteriorated further, and the stimulus effect of the two rounds of quantitative easing is limited, the possibility of the Fed's continued massive quantitative easing is unlikely, and it is more likely to introduce a "Operation Twist" to adjust the balance sheet.

The Fed has so far launched two rounds of quantitative easing measures totaling 2 trillion and 300 billion yuan, but these measures have limited effect on the US economy. At home, consumer confidence is still weak, and the real estate market is still bottoming out. President Obama's highly valued unemployment rate remains above 9%. In the international arena, the flood of liquidity has pushed up commodity prices and inflationary pressures on emerging market countries.

Within the Federal Reserve, the introduction of new quantitative easing policy also faces greater opposition. Some Fed officials pointed out that if the US inflation rate rises further or the inflation expectation is rising, the Fed needs to reconsider its position.

The US economic trend is still the most important consideration factor for Bernanke, chairman of the Federal Reserve, to decide whether or not to launch a large-scale stimulus policy. This is also the main reason why Bernanke postponed the policy from the end of August's Fed's annual economic forum to the conference. From the economic data, despite the plagued by the European debt crisis, the US economy has not deteriorated further. The Federal Reserve's September 7th National Economic Survey "Brown Book" believed that the US economy continued to be slow in the middle of July and the end of August. recovery InMomentum.

In addition, in his speech at the annual economic forum of the Federal Reserve, Bernanke pointed out that most of the economic policies supporting the long-term strong growth of the economy are not in the terms of reference of the central bank. Fiscal policy should play an active role in promoting stability and development. After Obama launched the $447 billion stimulus package, the pressure on the Federal Reserve's monetary policy to stimulate the economy has been greatly reduced.

Considering the above factors, it is difficult for the fed to decide immediately to launch a new large-scale stimulus plan. However, Bernanke is still likely to propose a "moderate" stimulus policy. Bernanke has repeatedly said that the Fed has tools to provide more support for the weakening US economy. For now, the Fed may use the following tools at this meeting.

First, it announces the extension of the average holding period of the securities held, the sale of short-term treasury bonds and the purchase of long-term treasury bonds, the so-called "reverse operation". Such changes in the balance sheet can extend the duration of its holdings of treasury bonds. One view is that the US Federal Reserve will buy a long-term treasury bond in the open market for 7-12 years, which lasted for six months. The scale of the incentive plan may be between 200 billion -4000 billion dollars.

The essence of this method is to lower long-term interest rates, reduce financing costs, encourage credit expansion and stimulate the economy. However, in the case of a very low interest rate in the US, this operation can make long term. bond The average yield fell by 0.1-0.2 percentage points, which was limited to the US economic growth.

Second, we should reduce the excess reserve interest. At present, the Federal Reserve pays 0.25% interest on the excess reserves of US $1 trillion and 900 billion. Once the interest rate level of these deposits is lowered, banks may consider borrowing funds for high yields. However, this move will reduce the profitability of banks and lead to fluctuations in the money market. The Federal Reserve should take a lot of public opinion risks.