Vladimír Urbánek (Kurzy.cz)
Markets  |  September 14, 2012 08:50:03

Fed yesterday announced another round of QE + + extension Twist zero rates until mid 2015


Yesterday's Fed meeting started really support the economy at large. Began another round of quantitative easing, which the market had expected (we do not), but as an added bonus continued operation twist (which should prevent any tendency to grow long end of the yield curve) and extended the commitment to lift the rate by mid-2015. Quantitative easing will focus purely on bonds tied to mortgages. It has two purposes: on the one hand, Bernanke will focus on supporting residential real estate market and also avoids the charge that the monetized debt. Perhaps the biggest attraction is opening another round of quantitative easing.The Fed announced that every month buys USD 40 billion for mortgage bonds and that the continued operation twist moves on the long end of the yield curve for government bonds of 45 billion USD. The effectiveness of the operation will be assessed on individual FOMC meetings and will continually adapt to the state of the economy. Redemption amount to de facto assumes the role of what was previously the level of rates as previously expected whether or not to change tariffs and will speculate on changes in the volume of buyouts. FOMC meeting that brought so much that it deserves special, which will be out there this morning.

The third round of quantitative easing from the previous two will differ significantly. The first two rounds have a fixed financial amount, while Bernanke said yesterday that the volume limit is not specified, nor is the specified period that will be QE3. The only concrete information is the monthly amount for which the Fed will buy, and to 40 billion USD. This information is a pleasant surprise for the market because it gives the U.S. central bank essentially unlimited capacity to intervene until it meets its goals. And those are the sustainable growth of the economy and decrease unemployment below 8% toward 7%, a level generally considered to be optimal. Current unemployment rate is 8.1%, above 8% unemployment since February 2009.

The Fed also issued a new forecast for economic growth in the coming years. In 2013, an estimated increase of 2.75% in the previous estimate of 2.5%. In 2014, it should be 3.4% from 3.25%. Unemployment at the end of next year, together with a QE3 should be between 7.6% - 7.9%.

After the announcement QE3 now voices of impending high inflation, which targets the Fed to 2%. This probably is not justified. When taking into account the current economic situation not good, large spare capacity and high unemployment, and inflation is not an acute problem.

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