US Federal Reserve to press on with QE2 stimulus plan

[EnglishLady]

BBC News Jan 4

The Federal Reserve will continue with its $600bn (£385bn) stimulus programme as it is not convinced by recent signs of a strengthening recovery in the US economy, meeting notes have revealed.

The Fed acknowledged the improving outlook, but said the programme - dubbed QE2 - would continue.

There had been some speculation that the Fed might scale back its stimulus measures given improved economic data.

Factory order figures, also released on Tuesday, showed a return to growth.

The commerce department said orders rose 0.7% in November, following a decline in October.

QE2 is the second round of quantative easing, the policy of creating money to pump into the economy to stimulate growth.

'Outlook improving'

The Fed minutes from its 14 December policy meeting revealed that "the pace and size of the overall purchase programme" would depend on the strength of the recovery.

"However, some members indicated that they had a fairly high threshold for making changes to the programme," the notes said.

"While the economic outlook was seen as improving, members generally felt that the change in outlook was not sufficient to warrant any adjustments."

The Fed pointed to the stubbornly high unemployment rate of almost 10%, and continued weakness in the housing market.

It also questioned the strength of consumer spending among poorer households.

"There were indications that retail spending by middle and lower-income households had risen less than spending by high-income households, suggestive of ongoing financial pressures on those of more modest means," the notes said

 

[greg334]

AND we are going to sink like the Titanic.

 

[EnglishLady]

why is it called the QE2 ?

 

[greg334]

It is called quantitative easing part II. The idea behind it is to ... well this is a simple explanation

QE2 (The Stimulus Plan, Not the Cruise Ship)

QE2 should help growth via three main channels. First, lower long term interest rates should stimulate various forms of credit sensitive spending such as housing, other consumer goods, capital goods, and state and local construction, as well as further help households reduce interest expense via refinancing.

Secondly, higher equity prices should boost consumer spending via the wealth effect and capital spending via a lower cost of equity capital.

And third/last, a lower dollar should help narrow the trade deficit.While most of these channels have open questions about their effectiveness in the current situation, they are apt to have a positive net effect.

OH the refunding thing in the first part is a bunch of crap.

The real problem is that it drives up the debt, it lowers the value of the dollar while again lowering interest rates which have not worked as expected. What many worries are is it will fast track us into a position that we never will get out of and for many, the lower the interest rate goes, the more we will end up paying in the long run to fund our debt which is what is part of the problem with the economy.

Many think raising the interest rate may help while others feel that there isn't a credit crisis but a crisis in government. Outlawing the use of credit with sub-prime standards is a great start, while tightening up control on the federal reserve is a big leap forward.

Ron Paul was being interviewed this morning and he made a really interesting point; we have allowed the regulatory agencies to write the regulations when it really should be in the hands of the congress. Maybe, or at least I hope some attempt is made, that the new congress actually start defunding these agencies to force them back in control of the congress and eliminate some of them that really we don't need.