Did Bernanke say QE2 is go for launch?

[thriftyandboringinohio]

Full text of his speech here:

http://www.federalreserve.gov/newsev...e20101015a.htm

Another concern associated with additional securities purchases is that substantial further expansion of the balance sheet could reduce public confidence in the Fed's ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations, to a level above the Committee's inflation objective. To address such concerns and to ensure that it can withdraw monetary accommodation smoothly at the appropriate time, the Federal Reserve has developed an array of new tools.⁷ With these tools in hand, I am confident that the FOMC will be able to tighten monetary conditions when warranted, even if the balance sheet remains considerably larger than normal at that time.

[jpatter666]

Re: Did Bernanke say QE2 is go for launch?

The Fed has gotten itself into a "damned if you do, damned if you don't position". Shred the dollar or shred the markets.

Finster ought to start his discussion on the next Fed meeting now -- could be the most critical one in over a year. What to do?

[thriftyandboringinohio]

Re: Did Bernanke say QE2 is go for launch?

This looks like his plan for getting out of the corner:

Committee participants have generally judged that a modestly positive inflation rate over the longer run is most consistent with the dual mandate. (The view that policy should aim for an inflation rate modestly above zero is shared by virtually all central banks around the world.) Several rationales can be provided for this judgment, including upward biases in the measurement of inflation. A rationale that is particularly relevant today is that maintaining an "inflation buffer" (that is, an average inflation rate greater than zero) allows for a somewhat higher average level of nominal interest rates, which in turn gives the Federal Reserve greater latitude to reduce the target federal funds rate when needed to stimulate increased economic activity and employment.

1. Crank up hot inflation to drag up interest rates to pull the fed up off the zero bound and start an overheated inflationary economy
2. crank up interest rates to kill the inflation by killing the economy like Volker did
3. then cut interest rates to restart the economy.

It's a plan.
If he finds himself neck-deep in stagflation at the end of step 1 we'll need another plan.

[ASH]

Re: Did Bernanke say QE2 is go for launch?

It sure seems to me (and, it seems, everyone else) that QE2 is a certainty at this point, based upon the Fed's change in wording -- and Bernanke is doing the chairmanly thing and clearly telegraphing the move. I guess some of the voting hawks have come over into the dove camp.

[mooncliff]

Re: Did Bernanke say QE2 is go for launch?

Or Plaza Accord 2?

[we_are_toast]

Re: Did Bernanke say QE2 is go for launch?

He says he has many tools. So what kind of QE2 will it be?

[sunskyfan]

Re: Did Bernanke say QE2 is go for launch?

"new tools" ... sounds like double secret probation ;) Just imagine the Bernanke is the Dean and Geithner is Marmalard and its the Fed Reserve building at the beginning. Delta is Wall Street.

[thriftyandboringinohio]

Re: Did Bernanke say QE2 is go for launch?

Because the short-term policy interest rate cannot be reduced below zero, the Federal Reserve and central banks in other countries have employed nonstandard policies and approaches that do not rely on reductions in the short-term interest rate. We are still learning about the efficacy and appropriate management of these alternative tools.

I translate this to say:
"Now we're down to just improvising and trying everything we can think of. We have no idea if any of this will work or what sort of damage might result. Wish us all luck. We gotta try something."

Like the gentleman below who says "we're confident it'll work", followed shortly by the annoucer saying " The humour of the entire situation suddenly gave way to a run for survival..."

[goadam1]

Re: Did Bernanke say QE2 is go for launch?

Great summation. Simple and true

[goadam1]

Re: Did Bernanke say QE2 is go for launch?

He says he has many tools. So what kind of QE2 will it be?

you don't get to know. It's like a carny barker but classy.

[Slimprofits]

Re: Did Bernanke say QE2 is go for launch?

"new tools" ... sounds like double secret probation ;) Just imagine the Bernanke is the Dean and Geithner is Marmalard and its the Fed Reserve building at the beginning. Delta is Wall Street.

The d0llar is Delta House. Lord Blankfein is Mayor Carmine De Pasto.

And Dean Wormer will not stop until the grade point average (USDX) of the Deltas is 0.0...