Fed hints at more quantitative easing in spite of its failure so far

Federal Reserve chairman Ben Bernanke has hinted the Fed will start another round of quantitative easing, known as QE2, to stimulate the economic system. The mere possibility the Fed will purchase much more Treasuries to pump money to the economic system has devalued the dollar, lowered treasury yields, boosted stocks and raised the price of oil, gold, silver, corn and other commodities. Yet unemployment remains persistently high, the primary threat to economic recovery, according to Bernanke.

Bernanke thinks deflation could be stopped with QE2

When trying to work with joblessness issues, quantitative easing is the only method to go considering interest rates are at practically zero. In a speech in Boston Friday, Bernanke said high unemployment is a scourge that could start feeding on itself by causing a debilitating cycle of deflation. According to CNNMoney.com, Bernanke thinks the Fed ought to cease trying to limit inflation. Inflation could be too low right now anyway. The dollar will become weaker with quantitative easing, which means we’d be putting more money into the economy. The Fed now owns $2 trillion in assets. Since 2008, this has had no effect although that is what the Fed has been doing.

How the thought of QE2 has impacted the economy

The November 2-3 meeting is where buyers plan on listening to the QE2 announcement from the Fed. The Associated Press reports that since Bernanke started hinting that he would order such a move, anticipation of QE2 has profoundly impacted the economic system. The price of oil is up 10 percent. Americans are paying $400 million more a week for gas. Gold has risen 11 percent to $1,377.60. Corn futures are up more than 30 percent. The average rate of interest on a 30-year fixed mortgage has fallen to 4.19 percent, the lowest since the 1950s. The average rate of interest paid on a one-year certificate of deposit has fallen to .55 percent. Joblessness is nevertheless bad. Double digits are practically being reached.

Factors QE2 won’t last

Bernanke talked about QE2 while in Boston. He said the QE2 would help the economy greatly. Of course, an increase in positions and decrease in unemployment along with increased spending and a better corporate revenue are what you’d expect from a weak dollar and low rate of interest. Kevin Giddis of Morgan Keegan, told CNNMoney.com that more quantitative easing won’t work, because it hasn’t yet. ”I do not think getting securities is going to pull the economy out of a ditch,” he explained evidently. “The sector is not purchasing it. We’ve made money accessible freely for a when now. The Fed has to start thinking way outside the box. This is not a war where conventional weapons can be used.”

Articles cited

CNN Money

money.cnn.com/2010/10/15/news/economy/bernanke_speech/?npt=NP1

Associated Press

google.com/hostednews/ap/article/ALeqM5hJprdjYORlZxJiFlMznIOBO7fs4A?docId=afebcea0bbfd4992bc5c4f9b46886f7c