How The Fed's New Measures Will Be Effective?

Choose "reverse operation" to avoid increasing. National debt Under the premise of buying quantity and not providing more liquidity, we should lower the yield of long-term treasury bonds, stimulate mortgage holders to refinance, promote investors to buy stocks or corporate bonds, and keep away from the risk of public debt, so as to achieve the goal of reducing borrowing costs and stimulating economic growth.

The third round of quantitative easing has not been launched this time. First, the first two rounds of long-term effects are not good. For example, pushing the third round will directly result in the expansion of the Federal Reserve's balance sheet. The two is that domestic and foreign policies against quantitative easing are too loud. The introduction of the "twist operation" can not only play the same effect as quantitative easing policy, but also avoid larger market and political risks.

The world has been paying close attention to the US Federal Reserve's prescription to prevent the economy from sinking further. The answer was announced in the morning of Beijing time on September 22nd. The Federal Reserve announced a $400 billion "reverse operation" measure. This is in line with market analysts' prediction direction, but only unveils the veil of specific figures. Market analysts have widely expected that the amount of this operation will be between 200 billion and 700 billion dollars, and will be defined as "OT".

The Fed's statement of interest conference August this year listed "three major discussions". policy Tools: one is to buy bonds again, that is, the third quantitative easing monetary policy known to the market; the two is to sell short-term treasury bonds and buy medium and long-term bonds, that is, the so-called "reverse operation"; and the three is to reduce the excess reserve ratio of commercial banks. Market analysts pointed out that the Fed chose second policy instruments, aimed at reducing the yield of long-term treasury bonds without stimulating the purchase of treasury bonds and providing more liquidity, stimulating mortgage holders to refinance, promoting investors to buy stocks or corporate bonds, and keeping away from the risk of public debt, so as to achieve the policy goal of reducing borrowing costs and stimulating economic growth.

This is the second direct use of this policy in the history of the United States. In February 2, 1961, the US Treasury reversed the yield curve in order to stop the outflow of gold (1745.50,3.80,0.22%) reserves, sell short-term bonds and buy long-term bonds. The purpose of the Fed's QE1 and QE2 in March 2009 and November 2010 is roughly the same as that of the reverse policy. All these are aimed at lowering the yield of the long-term treasury bonds, thereby lowering the mortgage interest rate, thereby promoting the improvement of the real estate market and the recovery of investment in the industrial sector, which is different from the scale of the Federal Reserve's balance sheet. Therefore, some commentators also interpreted the "twist operation" as "qualitative easing".

Analysts pointed out that the Fed did not launch the third round of quantitative easing policy this time. It has the following considerations: first, the long term effect of the first two rounds of quantitative easing policy is not good. If the side effects of the third round are pushed too hard, it will directly cause the Federal Reserve to expand its balance sheet. Two, there is too much noise against the quantitative easing policy at home and abroad. Therefore, the Fed will go back to the second place and launch the "reverse operation" policy, which can play the same effect of quantitative easing policy and avoid bigger market and political risks.

Volcker, who served as chairman of the Federal Reserve and chairman of the Obama economic recovery Committee from 1979 to 1987, expressed concern about the rise in inflation caused by loose money. He warned recently that "a little inflation may be beneficial to economic growth." The inflation rate of 4% to 5% is probably a dangerous idea to solve the problem of excessive debt and stimulate the vitality of enterprises. He pointed out that once inflation becomes a deep-rooted market expectation, it will lose its stimulating effect on the economy. Price stability and price stability expectations are key elements to maintain low interest rates and maintain sustained and stable development of an economy. Once an independent central bank abandoning a healthy price and tolerating and creating a small amount of inflation, it will be more difficult to eliminate inflation. He also said that foreign governments hold trillions of dollars in U.S. Treasury bonds, and the United States will borrow more money from them. The whole world is counting on the US dollar to maintain a stable purchasing power, and it is irresponsible to risk inflation.

The question is whether the latest measures launched by the Federal Reserve will work. The standard of inspection is to see whether we can achieve the policy goal of smoothing the yield of government bonds and promoting the growth of US industrial investment. After the implementation of the first two rounds of quantitative easing policy, the difference between the yield of us long and short term treasury bonds has not risen, which is similar to that of the us long and short term Treasury yields in the Greenspan era. Another important reason why market participants are doubtful about the new Federal Reserve policy is that the Federal Reserve, as a powerful force, has put its visible hand into the Treasury market, intervening the formation of the market equilibrium yield, resulting in the market rate of return can not accurately reflect the real price of the market for interest rates, and can not make banks and enterprises make a risk pricing on the future capital gains rate, so it will not encourage them to invest in industry. In addition, the long-term import of oil in the United States and the long-term deficit in trade projects have caused many huge US dollar countries and institutions around the world. They often hold us treasury bonds of various maturities. The selling and buying of US Treasury bonds and the structure and adjustment of their holdings of US Treasury bonds are related to these countries and institutions. Federal Reserve Judgments and intentions are often not consistent. This inconsistency partly offset the Fed's intentions.

After the announcement of the new measures by the Federal Reserve, US stocks fell rapidly. The reaction in the market indicates that investors are skeptical about whether the plan can stimulate the US economy to improve.