A Refresher Ahead Fed's Announcement of Second Round of Quantitative Easing

By: Asha_Bangalore

The Fed is widely expected to announce the second round of quantitative easing (QE) after the FOMC meeting on November 4. The goal of the policy change is to bring about an increase in real GDP above the tepid 2.0% pace reported for the third quarter such that it eventually makes a dent in the current elevated unemployment rate of 9.6%. The details of QE2 in terms of timing, size, and speed are awaited.

Enormous ink has flown to defend and criticize QE2 and, to a certain extent, the reputation of the Bernanke Fed rests on the success of QE2. A quick peek at Paul Kasriel's comments on how to assess the success QE2 (The Effectiveness of QE2 Depends on Quantities, Not Interest Rates or Exchange Rates) is a timely and suitable refresher. Key changes in Treasury note yields pertaining to QE1 are summarized in table 1.

Table 1 - Movements of Selected Treasury Security Yields 

Charts 1-6 illustrate market response to QE1.
 

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.