FOMC Quantitative Easing|
U.S. stocks continued their losses for a second day on Wednesday after minutes
from Federal Open Market Committee Minutes were released, showing an active
discussion of a third round of quantitative easing. For every stock rising, more
than two fell on the New York Stock Exchange, where 312 million shares traded as
of 2:25 pm Eastern Time with Composite volume nearing 2 billion shares. The U.S.
dollar (DXY) fell against other currencies, including the euro (EURUSD) .
Federal Open Market Committee Minutes from the July 31-Augist 1 meeting released
Wednesday show that members of the Federal Reserve appear to be closer to a
third round of bond buying by the Fed, known as QE3 - even as a less aggressive
step of altering language on a low-rate pledge seems to be in the works.
Economic data have stabilized since August 1, but it’s not at all clear that the
improvement in the economic data has been 'substantial' enough to forestall
further action by the Fed. "Many members judged that additional monetary
accommodation would likely be warranted fairly soon unless incoming information
pointed to a substantial and sustainable strengthening in the pace of the
economic recovery," the minutes said. The first alternative for action listed is
essentially what the markets anticipated for the August 1 meeting - a change in
the date over which the central bank expected to keep its target range for the
federal funds rate between 0% and 0.25%, perhaps in conjunction with a statement
saying a 'highly accommodative stance' was likely to be maintained even as the
recovery progressed. The second idea tossed around is what's commonly called
'QE3' - or in the words from the minutes, 'a new large-scale asset purchase
program'. According to the minutes, 'many participants' said that a new
large-scale asset-purchase program could “provide additional support for the
economic recovery” by lowering long-term interest rates and by “contributing to
easier financial conditions more broadly.” Others said that QE3 could help by
boosting business and consumer confidence. With the economy growing at a
mediocre 2% annual pace, with inflation subdued and unemployment at unacceptable
levels, the Fed fears that the economy is too weak to sustain another blow from
outside. With Europe sliding toward a breakup and Congress skidding closer to
the fiscal cliff, the odds of another economic shock are rising daily.
The National Association of Realtors reported Wednesday, existing home sales
climbed 2.3% to a seasonally adjusted annual rate of 4.47 million in July,
roughly in line with the 4.5 million consensus. The median price of existing
home sales climbed 9.4% year-on-year to $187,300 while inventories rose 1.3% to
2.4 million units, representing 6.4 months of supply. Due to an embargo break by
a news organization, the data was released early.
The Congressional Budget Office estimated in a report on Wednesday that the U.S.
government will run a budget deficit of $1.1 trillion in fiscal 2012, or 7.3% of
gross domestic product. The new budget deficit estimate came in slightly lower
than March estimate of $1.2 trillion. If scheduled tax increases and spending
cuts take effect in January, the nonpartisan CBO predicts that the U.S. economy
will grow at a 2.1% clip in 2012, but fall by 0.5% between Q4 of 2012 and Q4 of
2013. Under that 'fiscal cliff', the U.S. would experience a recession, with
U.S. unemployment jumping to nearly 9% in the second half of 2013 from its
current 8.3%, CBO said. Previously, the CBO said growth would be 0.5% in 2013
under the fiscal cliff.
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Aug 22, 2012