Federal Reserve Chairman Ben Bernanke to accept CBS program 60 Minutes interview, when asked whether the Fed will expand the quantitative easing program, Bernanke replied, “(this) the possibility exists.”

However, after ten days at the Federal Reserve meeting on interest rates, this implies not clear, the wording after the notice is not new.

In fact, similar to the second stimulus program of tax cuts passed the new, more aggressive Fed easing the implementation of the urgency and possibility has been reduced.

December 15, the former Republican president has to compromise two-year extension of the national tax cuts new bill in the Senate by 81 votes in favor and 19 votes against, was adopted. It is estimated that the scale of the new tax cuts of up to 858 billion U.S. dollars, that will be added in the next decade, the corresponding size of the U.S. budget deficit.

Government officials hope that this can contribute to speed up the recovery of the U.S. economy and to improve the employment situation of recession.

The short term, the program reduced the effects of quantitative easing monetary policy. In anticipation of the fiscal stimulus tax cut will have up to 14 trillion of federal debt worse, and may lead to inflation, the U.S. bond market downturn Dayton settlement, the main varieties of bond yields rising rapidly, the 10-year bond yields December 15 soared to 3.53%, than in the second round of quantitative easing (QE II) 1 percentage point higher than the start. The Fed QE II is a major purpose is to guide the long-term decline in interest rates to stimulate economic growth.

More positive signals

At this meeting on interest rates, the Fed reiterated that U.S. Treasury bonds and benchmark interest rates unchanged in the range close to zero, to determine the overall economy has not materially changed, but by the impact of Bernanke’s speech had some Market participants expect the Federal Reserve may consider expanding the scale of quantitative easing. When this is expected to be broken, the dollar stabilized situation presented to December 16, the U.S. dollar index remained above the 80 range.

Some analysts said Bernanke gives the wrong signal to institutional investors did not have too much interference. “Before and after the meeting on interest rates, the dollar index was not as many investors expected volatility, interest-rate meeting did not happen because of any accident situation, investors will focus on the fundamentals.

Taking into account the recent announcement of U.S. trade, retail sales, consumer confidence and purchasing managers index data have improved, with the continuation of tax cuts, the Fed policy of quantitative easing, the situation has changed.

Even if tax cuts do not fully take into account the impact of U.S. economic growth is likely to accelerate to 3% in 2012, this speed is likely to emerging trends in the fourth quarter of this year. Economists expected the fourth quarter, a seasonally adjusted annual rate of U.S. GDP growth will be 2.6%. This forecast is higher than 2.4% of the survey last month. The third quarter of this year, the U.S. GDP growth rate of 2.5% annualized.

“QE II launch market was a lot of criticism, the Federal Reserve to further expand the scale of quantitative easing will be very careful.” RBC Capital Markets economist Crow Dougherty (Mike Cloherty) analysis, QE II expansion necessary premise is that the U.S. economy significantly increased risk of second bottom.

The effects of policies to be observed

Recent signs that the U.S. economy began to show more positive signs of recovery, but to improve the employment situation is still not optimistic.

U.S. Labor Department data showed U.S. non-farm employment in November increased by only 3.9 million people, far below market expectations of 15.5 million people. In addition, the November U.S. unemployment rate rose to a high of 9.8% for this year, its highest level since April. Based on the previous month, the unemployment rate and the re-approaching double-digit gains, average weekly working hours of labor last month, also based on the slight drop.

Many economists predict that, even in all the stimulus, the labor market recovery will be very slow progress.

U.S. Federal Reserve meeting on interest rates has also highlighted the announcement, “While the economy continues to recover, but its unemployment rate is still not enough to ease tensions.” Of high unemployment, low income growth, housing prices and the credit crunch and other objective circumstances, inhibit growth in consumer spending, which makes only modest growth in consumer spending.

“Despite a series of economic data was better than expected, but the Fed’s overall tone remains cautious.” Aichi Amemiya economist at Nomura Securities said that the last Federal Reserve meeting on interest rates on employment-related expression is, “the pace of recovery in output and employment still very slow “, taking into account to ensure full employment is one of the main duties of the Federal Reserve, and the current inflation is not yet a threat, its policy focus more concerned about the current economic situation will continue, even if short-term improvement in economic data continue to implement the attitude of the QE II quite firm.

In addition, the fiscal stimulus is clear that monetary policy was the occasional embarrassment. Federal Reserve to implement the important purpose of QE II, by increasing the money supply, lower market interest rates to stimulate economic recovery. However, the recent trend in market interest rates and the Fed is contrary to the wishes.

The Mortgage Bankers Association reports that as of December 10 in the week, the U.S. mortgage applications index fell 2.3% to 589.7 points. At the same time, the 30-year mortgage interest rates from 4.66% the previous week rose to 4.84%, reaching its highest level since May. 10-year U.S. Treasury yields, but also in mid-December soared to 3.53%, while the QE II starts -2.5% 2.4% only.

Taking into account the prospects for U.S. economic recovery, the U.S. future inflation situation, as well as factors such as the U.S. government’s solvency, the Fed’s policy of buying U.S. Treasury bonds, may not only fail to promote long-term U.S. Treasury prices rise (yields fall), but will lead to long-term U.S. Treasury prices decline (yield increase).

“Bland compared to the description of the Federal Reserve, the U.S. economy and signs of recovery in the implementation of tax cuts, bring to the market more passionate the ‘language’, despite the recent rise in interest rates offset the positive impact of some of their policies, but the Fed may and will not choose the way by expanding the QE II to the impact of interest rate price. “Harris, chief economist at UBS Securities (Maury Harris) this prediction. He believes that once the Fed choose to quantify the scale of increase in interest rates way down, “monetization” may further exacerbate concerns about inflation expectations, and promote the interest rates continued to rise.

Fisher and Pu Luosuo such as “hawk” style known for its members to join, may bring change to Fed policy.

French bank Societe Generale issued in December 15 it said in a report, due next year, changes in the Fed voting members of the Committee, the Federal Reserve implement monetary policy may be more difficult, but as long as the job market can not give convincing turn signals, and inflation data is still relatively low, then the Fed is likely to have to maintain an accommodative monetary policy.

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