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David answered on
Dec 21 2021
1)
Article link: http:
www.marketwatch.com/story/feds-yellen-keeps-door-open-for-more-
easing-2012-06-06?link=MW_story_insert
U.S. economy is cu
ently on recovery path but still the unemployment is very high.
The number of jobs created recently is much less than that was expected to be created. The
growth in the economy in 2011 was very slow and more due to temporary factors. Efforts are
made to improve the economic situation of the country. In recent months, policy makers
followed expansionary fiscal policy which has led to rise in employment but along with it the
ise in budget deficit of U.S. The fiscal deficit surged to $124.6 billion from $57.6 billion in May
2012.
Here is the related article (as on June 6, 2012):
Fed’s Yellen keeps door open for more
easing
WASHINGTON (MarketWatch) — A top Federal Reserve official said
Wednesday that the door remains open for more easing of monetary
policy, especially if central bankers are wo
ied about the downside
isks to the outlook.
Janet Yellen, the number-two Fed official behind Fed chairman Ben
Bernanke, made the assertion in an evening speech to the Boston
Economic Club.
“I am convinced that scope remains for the FOMC to provide further policy
accommodation,” Yellen said.
There were three conditions under which the Fed might ease: if
policymakers decided that the recovery was too sluggish, if downside
isks to the outlook become “sufficiently great” or if there was a
threat of deflation.
http:
www.marketwatch.com/story/feds-yellen-keeps-door-open-for-more-easing-2012-06-06?link=MW_story_insert
http:
www.marketwatch.com/story/feds-yellen-keeps-door-open-for-more-easing-2012-06-06?link=MW_story_insert
Yellen is considered one of three most-influential Fed officials along with
Bernanke and William Dudley, the president of the New York Federal
Reserve Bank.
In a question-and-answer session, Yellen noted that recent economic data,
including weak jobs numbers last week, have been “pretty disappointing,”
according to reports.
Investors will get an update on Bernanke’s views when he testifies
Thursday morning on the economic outlook to the Joint Economic
Committee of Congress.
Financial markets have become more volatile in recent weeks given
concern about the European debt crisis. At the same time, U.S. economic
data has indicated slower momentum in the recovery.
Fed officials and economists are debating publicly whether more easing is
wa
anted. Stocks surged on Wednesday as pressure mounted on the
Fed to come up with additional stimulus. Read more on U.S. stocks.
In her speech, Yellen said “risk management considerations” strengthen
the case for more easing.
“There are a number of significant downside risks to the economic outlook,
and hence it may well be appropriate to insure against adverse shocks that
could push the economy into te
itory where a self-reinforcing downward
spiral of economic weakness would be difficult to a
est,” Yellen said.
The Fed could ease by changing the wording of its “forward guidance” that
ates are likely to stay low until late 2014 or through more balance sheet
actions, she said. This might take the form of more asset purchases or by
extending the Fed’s $400 billion Operation Twist program to extend the
maturities held on its balance sheet.
On the other hand, more easing might “reduce confidence” in the Fed
and cause investors to expect higher inflation ahead, she said.
Yellen did not, by any means, guarantee more easing. “The outlook is
uncertain and Fed officials will need to adjust policy as appropriate as
actual conditions unfold,” she said.
Michael Dueker, chief economist at Russell Investments, said he did not
think Yellen was signaling more quantitative easing at the June meeting.
http:
www.marketwatch.com/story/us-stocks-rally-dow-back-in-black-for-2012-2012-06-06-10103656
“My best guess is they would announce another round of QE at the August
1 meeting,” Dueker said in an interview.
“The June meeting is a little bit too soon and they have not prepared
people’s expectations,” he said.
Yellen said that she considers “the balance of risks to be tilted toward a
weaker economy.” The economy remains vulnerable to setbacks, she
noted.
At the moment, downside risks include gridlock in Washington over
fiscal policy, the potential for “highly destabilizing” developments in
Europe and global financial markets, the possible overestimation of the
strength of the recovery and the possibility that the labor market could
fracture if the recovery were to stall.
Earlier Wednesday, the Fed released a surprisingly upbeat Beige Book
eport on cu
ent economic conditions. Read „Few signs of slowing in Beige Book‟‟
“After reading the Beige Book I do not see why any pressure would be
mounting for the Fed to do more,” said Robert Brusca, chief economist at
FAO Economics in a research note.
“Not one Fed district speaks of a flat spot in growth or a backtracking, every
district is still growing [while] a few mention some slowing,” he said.
According to Federal Reserve Bank chairman, Ben Bernanke, European crisis has
severely affected the financial markets in U.S. Stock prices have gone down in recent months
creating negative effects on the economy. Now the Congress is considering increasing tax rates
and reducing government spending in order to reduce the huge fiscal deficit. This legislation is
already in place by this year‟s end. Bernanke fears that the “Fiscal cliff” at the end of 2012, can
ing another recession in U.S. and affect the financial markets adversely. In such a situation,
quantitative easing can play a cruitial role in reducing unemployment in the economy, as
suggested by the Fed official, Yellen although no such decision of easing monetary policy
further is taken to be final.
http:
www.marketwatch.com/story/few-signs-of-slowing-beige-book-2012-06-06
On the hopes that Fed will follow further Quantitative easing (buy financial assets and
increase money supply in the economy), stock prices surged. Data shows that Dow Jones,
NASDAQ, and S&P 500 all closed at a higher level on June 14, 2012. Fed‟s indication of further
increasing money supply in the economy after Greece polls is an important factor in affecting the
U.S. financial markets positively. Also recently, Fed‟s official announced that U.S. economy is
growing at moderate rate and will continue to grow. This also sent good signals to U.S. financial
markets and stock prices surged.
As can be seen by the above diagram, the stock markets are really volatile though in past few
days they have performed comparatively well. Fed‟s policy indications led to higher U.S. stock
prices as on June 14, 2012.
Quantitative easing is quite different from the conventional method of increasing money supply
in the economy. The conventional way of increasing money supply in the economy is through
open market operations. Fed can buy short term bonds in the open market...