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The Spectacle Blog
This morning’s alarming jobs report is the latest in a long line of worrying indicators about the economy. The Federal Reserve reacted to last month’s negative indicators by announcing that they would keep short-term interest rates near zero through 2013. The unemployment report, which is probably the most important indicator, could spur the Federal Open Markets Committee to take even more drastic action when it meets for an unprecedented two-day session on the 20th and 21st of this month. In his Jackson Hole speech, Ben Bernanke said that the point of the two-day meeting was to “to allow a fuller discussion,” but it could also be to convince the unwilling members of the committee to embrace new measures for stimulating the economy.
Before looking at what those actions may be, it’s worth noting that the term “quantitative easing” has lost some of its usefulness. Before people became aware of what would ultimately be known as QE2, “quantitative easing” had a specific, technical meaning: usually the Fed targets the Federal Funds Rate as its policy instrument, meaning that it announces what the rate should be, and then purchases or sells as many short-term bonds as it needs in order for the market to settle on that rate (usually those purchases/sales are relatively small). Quantitative easing, on the other hands, means that the Fed targets a dollar number of securities as its policy instrument — hence quantitative — instead of a rate, and allows the market to determine the rate. With QE2, for example, the Fed announced that it would purchase $600 billion of longer-term securities, without specifying what the interest rates on long-term bonds should be.
Nowadays, however, quantiative easing is taken to mean “accommodative actions by the Fed.” While it’s been reported that the Fed may try a QE3, the reality is that quantative easing is only one of the options the members of the FOMC are considering. We can see what options they’re weighing from the minutes of their last meeting, when they discussed what they might do if the economy takes a turn for the worse:
Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates. Others suggested that increasing the average maturity of the System’s portfolio—perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities—could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve’s balance sheet and the quantity of reserve balances. A few participants noted that a reduction in the interest rate paid on excess reserve balances could also be helpful in easing financial conditions.
In other words, it’s very possibly that we’ll see one of three things on the 21st: more bond-buying, a shift from short-term to long-term bond purchases, or a decrease on the rate paid on excess reserves held at the Fed. Either way, it’ll be called QE3.
View all comments (11) | Leave a comment
More Blog Posts by Joseph Lawler
http://spectator.org/blog/2011/09/02/jobs-report-increases-the-like
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Sean| 9.2.11 @ 4:45PM
I got a wheelbarrow handy to cart around all my devalued currency.
Ross Kaminsky | 9.2.11 @ 7:30PM
Joe, I don't think there will be QE3. At some point even The Bernank knows QE1 and 2 didn't work. But more importantly, as we get closer to the election, the Fed will become more reticent to do anything.
martin j smith| 9.3.11 @ 7:48AM
I do not believe the FED can band aid the wounds caused by OBAMA'S economy.
Clint| 9.3.11 @ 9:23AM
This will fail, as did The Kennedy Era " Operation Twist".
Wayne | 9.5.11 @ 9:41AM
What idiots gave this kind of authority over our economy?
Oldefarte| 9.5.11 @ 4:18PM
This is by far the most corrupt Fed chairman in my lifetime, since he has obviously completely caved into this administration's desire to juice the economy monetarily [since the administration's fiscal non-stimulus has been a complete and predictable failure]. This administration's CHICAGO WAY of browbeating this Fed chairman etc into compliance is contemptable and deplorable. The futuristic and certain explosion in inflation from the latent effects of the Fed's dumping tons of money into the financial system will make Carter's double digit runaway inflation of the '80's seem like a walk in the park. Grap your socks/jocks kiddies, because it's bout to get mighty ugly financially speaking. The economic/financial damage [beyond the moral/legal element] that this administration has done in two short years is amazing. 11/4/08 was America's Waterloo!!!!!!!!!
Oldefarte| 9.5.11 @ 4:20PM
Nah, maybe it was/is more like our LITTEL BIG HORN moment!!!!!!!!
PattyMor| 9.5.11 @ 4:35PM
No, I'm convinced that Bernake sold out in order to be reconfirmed. Its all so obvious.
Just what hasn't Obama tried? Well for a list, he could:
1. Turn the water on in the Central Valley
2. Give Shell their air permits in order to develop their fields in Alaska.
3. Award the permits, so the drillers can drill in the Gulf Of Mexico.
4. Rescind every regulation that he put into place since becoming Prez.
5. Rescind Obammycare.
6. Rescind Dodd/Frank
7. Pass Cut, Cap, and Balance
8. Drill for oil off the East Coast, off Florida, off California.
9. Open more refiners
10 Pass tax reform and lower the rates
11. Deport all illegal aliens found, so Americans can have the jobs.
12. Let Boeing open their plant in S. Carolina
13. Back off Card Check.
PattyMor| 9.5.11 @ 4:35PM
No, I'm convinced that Bernake sold out in order to be reconfirmed. Its all so obvious.
Just what hasn't Obama tried? Well for a list, he could:
1. Turn the water on in the Central Valley
2. Give Shell their air permits in order to develop their fields in Alaska.
3. Award the permits, so the drillers can drill in the Gulf Of Mexico.
4. Rescind every regulation that he put into place since becoming Prez.
5. Rescind Obammycare.
6. Rescind Dodd/Frank
7. Pass Cut, Cap, and Balance
8. Drill for oil off the East Coast, off Florida, off California.
9. Open more refiners
10 Pass tax reform and lower the rates
11. Deport all illegal aliens found, so Americans can have the jobs.
12. Let Boeing open their plant in S. Carolina
13. Back off Card Check.
Oldefarte| 9.5.11 @ 5:16PM
Whether or not Bernanke is seeking re-nomination is irrelevant to his lack of spine and inability to reamin independent IMO. I'm with you 150%, especially #3 through #8. It's now apparent [theough predictable] that he's predicating his Detroit rally today with another non-stimulus push to spend more money with Thursday's speech. I know....duh. I think maybe the necessity might be unavoidable of seeking IMPEACHMENT against him [G-d knows, the possible charges-reasons available are numerous;but the cries of 'racism' will be coming forth from same also]. The markets opening tomorrow are going to be a disaster, and I don't know if this country can survive until next November otherwise [Biden would possibly be as bad or worse]. It's really getting extremely bad and these incompetitents running our government are destroying this country!!!!!
yisong| 10.27.11 @ 9:46PM
compact in design,and light in weight.The balls contact with the circular race at four points,via which the axial force,radial force and resultant moment may be born simultaneously. http://www.1stbearing.com