St. Louis Fed President James Bullard said on August 20, if the U.S. economy shows signs of slowing inflation, then the Fed should buy more U.S. Treasury bonds, and to further expand its balance sheet size; the Federal Reserve must be ready to restart the quantitative easing. On the same day, rating agency Standard & Poor’s also issued a famous report, if the Fed can expand the money supply quickly and decisively, the United States can avoid deflation.

There are indications that the rapid economic growth slowing and inflation pressures corresponding apparent tightening, the Fed has to bear enormous pressure, the agency has begun to market a shot, Wei restart when needed quantitative easing “momentum” .

Exert tremendous pressure on the risk of deflation

Brad told U.S. media that the U.S. economy if the trend shows that the risk of anti-inflation rise, it could mean you have a legitimate reason to buy more bonds, rather than maintain the size of the balance sheet without changing the acquisition. In his view, after all, a purchase of U.S. Treasury bonds into the liquidity to the market more efficient and flexible way; “also can increase inflation expectations.”

Earlier this month 17, the Fed bought 2.55 billion one-day short-term U.S. Treasury bonds, a move is considered to restart the quantitative easing policy of the United States a signal. JP Morgan economist Wang Qian told reporters China Securities Journal said on the Fed’s move to buy U.S. Treasury bonds is concerned, this action does not expand the Fed’s balance sheet, only to assets held in mortgage-backed securities (MBS ) into U.S. Treasury bonds, in essence, the Federal Reserve portfolio changes.

Meanwhile, one of the three major U.S. rating agency Standard & Poor’s also issued 20 “how the United States faces a serious threat of deflation,” the report pointed out that the risk of deflation is the Fed increase the money supply one of the major sources of stress.Standard & Poor’s chief economist David Wyss said that if the core inflation rate of less than 1%, then the U.S. economy from deflation is also not far away; but he expects the U.S. consumer price index (CPI) the possible long-term decline is small, unless the economic double-dip recession.

Earlier this year in May and June, the U.S. monthly CPI rate of 0.1% straight chain down, but July’s 0.4% rebound in the corresponding data stabilized, to a certain extent, the market eased on the U.S. economy may fall into deflation fears .

Policy “tone” has already relaxed

In addition to a sharp slowdown in economic growth and deflation risks appear, the Federal Reserve Chairman Ben Bernanke held in July semi-annual testimony on monetary policy, the policy has been left loose “tone.” Bernanke said at that time, the Fed has already done the deterioration in the economic recovery process, the introduction of more incentives to prepare.

Bernanke’s speech makes it in March set a gradual tightening of monetary policy “tone” is no longer trusted by the market, outside the issue of whether the Fed should restart from quantitative easing policy, why change begins to restart, this is no different pressure to bear on the Federal Reserve raised “a number of levels.” He believes that the Fed still need to its future monetary policy set the tone, but the current economic recovery, the situation situation of uncertainty that is difficult to achieve quickly.

Indeed, despite the market that the Fed should expand the money supply, but when the restart of its monetary easing policy, the Fed proposed general view is still the degree of “the”, especially in the U.S. economy remained stable against the background of growth. Brad believes that given the current expectations of the U.S. economy continues to expand, do not need to be implemented immediately in the maintenance of the balance sheet without changing the scale of acquisitions of U.S. Treasury initiatives.

Indeed, the U.S. economic recovery was significantly slowed in the second quarter GDP was only 2.4% of initial value and may even be reduced to 1.3%. But the slow pace of recovery means that the process of economic stabilization, a larger decline than expected, its trapped in a “double-dip recession” unlikely. According to JP Morgan expects the United States this year and fourth quarter GDP growth will be 2% and 2.5% -3%.

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