Tuesday, August 9, 2011

Quantitative Easing

After Monday’s market turmoil, all eyes turned to the Federal Reserve to see how the central bank and its chairman, Ben Bernanke, would react. Most of the speculation focused on whether Bernanke would announce a third round of quantitative easing, or QE3.
But while anticipation circulated Tuesday morning of a possible QE3 announcement, some economists say the move isn’t likely.
According to James Rickards, Senior Managing Director of Tangent Capital, the only thing onlookers can expect from the Fed Tuesday, is more of the status quo.
In an interview with The Daily Caller, Rickards said while he would not rule it out in the months ahead,  the Fed would not announce a QE3 Tuesday, citing three main reasons.
For starters, said Rickards, “The Fed lacks credibility because QE2 failed.” There is also a big central bank meeting scheduled for October in Jackson Hole, Wyoming, and the Fed will likely hold off on debate a third round of quantitative easing until then. And finally, there’s Europe.
Since European countries started experiencing its own major financial crisis, they recently started pushing their own version of QE, or, what Rickards calls “EuroTarp”.
“It’s got to be approved by all the member, and is going to take a couple months,” said Rickards. “Likely, the Fed will want to coordinate efforts with the European Central Bank,  first and there hasn’t been time to do that since the euro-crisis flared up recently.”
In fact, said Rickards, the economy would have to get “much worse before they get to QE3.”
Anthony Randazzo, Director of Economic Research at the Reason Foundation, agreed, telling TheDC that another round of QE is unlikely at this point.
“When it comes to the Fed considering its options you have to consider the problems,” said Randazzo. “And other than buying up all the debt remaining in the system, Bernanke can not do much. We are in a contracting economy that was goosed by debt but is now deleveraging.”