The Federal Reserve launches QE3
By The Economist
From The Economist
Published: September 17, 2012
Sep 13th 2012, 21:11 by G.I. | WASHINGTON
Earlier this year, the Federal Reserve reached a crossroads. It had lowered short-term interest rates to zero and promised to keep them there until 2013, and then 2014. It had undertaken multiple rounds of bond purchases to lower long-term interest rates. Yet the recovery was actually losing steam; unemployment had stopped falling. Was there anything left to try?
The answer, it turns out, is yes. The Fed made one of its most consequential announcements yet today. The detailed actions were, in themselves, similar to previous steps: it will buy $40 billion of mortgage backed securities per month, and extend the period of short-term rates near zero until at least mid-2015. But the game changer was what it said: it will keep buying bonds until, and beyond, when the recovery is firmly established. Specifically, the Federal Open Market Committee said in its statement:
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… [A] highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.
There are two key innovations here, both aimed at altering expectations. First is the commitment to open-ended bond purchases. Last week, the European Central Bank put its unlimited capacity to print money to bear on the euro crisis by promising to buying peripheral country bonds with no “ex ante quantitative limit”. The Fed has done the same thing, though in the cause of boosting output rather than saving the euro. Do not underestimate the psychological impact on investors of "unlimited."
The second innovation is that by setting a concrete benchmark for what it wants monetary policy to achieve, the Fed hopes to do more than what that policy alone has done. Its past rate commitments and bond purchases (twice financed with newly created money, called quantitative easing, and once by selling short-term bonds, dubbed Operation Twist) have certainly driven interest rates down and buoyed the stock market. But the economic results have been disappointing. A growing clamor of voices, from Paul Krugman and Christina Romer on the pages of the New York Times to Mr Bernanke’s friend and former co-author Michael Woodford at Columbia University have argued the Fed hadn’t done enough to harness the public’s expectations to the cause of recovery. Their preference was a radical shift in the Fed’s policy framework, to targeting a higher inflation rate or a higher path for nominal gross domestic product.
Such a shift was always a stretch for an inherently conservative institution such as the Fed. So Fed insiders, notably Charles Evans of the Chicago Fed and Janet Yellen, the vice-chairman, put forth close substitutes: commit to easy policy until the economy was much closer to full employment. Importantly, this would allow inflation to wander temporarily above its 2% target without requiring a departure from that target. Today’s statement is Evans-lite: it does not state a numerical target for unemployment or a tolerance level for higher inflation, but it comes close. Explaining the purpose to reporters, Mr Bernanke said,
The idea here is to make it more explicit and transparent to the public that … the Fed will do what’s needed to provide support. We hope that will provide a bit more assurance, maybe a bit more confidence the Fed will be there to do what it can. By assuring the public we will be prepared to take action if the economy falters, that will increase confidence, make people more willing to invest, hire and spend... If inflation goes above target, we take a balanced approach: bring inflation back to target over time but in a way that takes into account deviations of both [unemployment and inflation] from our target.
The decision to launch this third round of quantitative easing, or QE3, was a long time coming. As far back as June it had become apparent the economy was faltering. FOMC members have lowered their expectation of growth this year from between 2.4% and 2.9% in April to between 1.7% and 2% in this month’s projections. But within the Fed, many officials were losing faith in their ability to do anything about this. Mr Bernanke needed to persuade them, and himself, that more QE could help the economy and that any unwelcome side effects such as a more complicated exit strategy, or distortions to market functioning were manageable. That required extensive staff research and time. It also required data that showed the economy wasn’t getting better on its own. By this week, all those things were in place.
The length of the Fed’s deliberations frustrated outsiders who wanted easier monetary policy much sooner. Mr Bernanke reckons he sacrificed immediacy for durability. Eleven of the 12 voting FOMC members supported the action (Jeffrey Lacker of the Richmond Fed dissented, as he has all year). Fed chairmen have always preferred consensus, but it’s especially important in the current hyper-politicized atmosphere. Republicans have regularly launched broadsides against QE; Mitt Romney has said he will not reappoint Mr Bernanke after his term ends in 2014, and Barack Obama may not be able to get him confirmed even if he wanted to keep him. Investors may have wondered whether to trust a policy whose architect may not be around to see it through; such doubts would have undermined the Fed’s desired effect on expectations.
Mr Bernanke, without explicitly mentioning politics or his future, noted:
We were able to come to a pretty good consensus on this. That’s a sign the broad center of the committee does support these actions and will continue to support them going forward. The basic ideas are broadly espoused inside the committee. So even as personnel changes going forward, this will be seen as the appropriate approach and we will have created a reserve of credibility we can use in subsequent episodes.
Republicans criticized the Fed’s action, though they framed their comments more as an of indictment Mr Obama’s record than a condemnation of the Fed. Lanhee Chen, Mr Romney’s campaign policy director, called the Fed’s action “further confirmation that President Obama's policies have not worked…We should be creating wealth, not printing dollars.” Republicans may be looking to the day when they control the White House and will be less hostile to stimulative policies than when the principal political beneficiary was Mr Obama.
The Fed is now buying $85 billion worth of long-term securities a month, after including the $45 billion of Treasurys it buys under Operation Twist. Whether that pace rises or falls will depend on how the economy performs. The next logical review will be in December, when Operation Twist comes to an end, and the Fed will have to decide whether to compensate by expanding QE3.
That will depend on whether the policy seems to be working. So far, investors like what they see. The broader stock market jumped 1.5% with the S&P 500 hitting its highest close since 2007. Treasury bond yields actually edged lower (they typically sell off when investors are flocking to stocks) and the yield on the 30-year mortgage backed security plunged 15 basis points. The real test will be the behavior of spending, income and employment. The economy faces several strong headwinds, notably a recession in Europe and the threat of severe fiscal tightening at home through year-end. For that reason alone, a near term improvement in employment seems unlikely.
But thereafter, things look better. Between the ECB’s action last week and the Fed’s today, the world’s two most important central banks are bringing unprecedented resolve to bear on economic growth. The world may one day look back and conclude the first half of September was either a turning point for the global economy, or the final nail in the coffin of the doctrine of central bank omnipotence.
©The Economist Newspaper Limited 2012
QE3搶救全球經濟？聯準會2大關鍵革新
2012-09-17 Web only 作者：經濟學人
今年稍早，聯準會來到了十字路口；聯準會已經將短期利率降至零，承諾維持零利率至2014年，並數次收購債券以拉低長期利率。不過，復甦卻失去動力，失業率亦停止下滑；聯準會還有什麼方法可以試嗎？
如今看來，答案是肯定的。聯準會發佈了極重要的聲明，措施的細節與過去相似，包括每月收購400億美元的房貸擔保證券、至少在2015年中之前都會維持零利率等。但真正重要的是，在復甦站穩腳步之前和之後，聯準會都會持續收購債券。
關鍵革新有二，目的皆為改變預期。其一為承諾無限制地收購債券；上星期，歐洲央行承諾無限制收購問題國家債券，聯準會做了同樣的事，只不過理由是刺激產出而非拯救歐元。
第二項革新則是，聯準會設定了明確的貨幣政策目標，希望其效果能超出政策本身的影響力。過去，聯準會採行的措施確實拉低利率並帶動了股市，但經濟成果卻讓人失望；這次聯準會承諾在經濟更接近完全就業之前，都會採行寬鬆政策，亦即通膨有可能暫時超出2%的目標，但聯準會也不必放棄此目標。
聯準會現在每月將收購850億美元的長期證券，其中包含「扭轉操作」下的450億國庫券。目前股市、債市反應佳，但真正的考驗在於購買、收人和就業。
美國經濟面對數股強力的打頭風，近期內要有所改善似乎不太可能，但隨後情況應該會好轉。歐洲央行與聯準會的近期舉動，顯示全球最重要的兩間央行有著前所未見的決心；2012年9月上半可能會是全球經濟的轉折點，也可能會成為打垮全能央行理論的致命一擊。（黃維德譯）
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