In the two day monetary policy meeting, Federal Reserve 4 am Beijing time, as expected, announced a new round of quantitative easing program. Federal Open Market Committee announced the second quarter of 2011, about 6,000 billion U.S. dollars to buy U.S. Treasury bonds.
The Fed said in a statement, the performance of the U.S. economy is currently lower than the Fed had expected, and because companies do not want to increase the manpower, which led to high unemployment, and therefore the U.S. economy faces the risk of deflation. In such circumstances, the Federal Reserve decided to maintain the 0 to a record low 0.25 interest rate to more. ANZ Bank, the Federal Reserve into raising interest rates will not be earlier than the third quarter of next year. In addition, the Fed announced it would acquire long term treasury bonds to support economic recovery. Although the Fed has had to market a massive liquidity, but the effect of these policies began to gradually decrease and disappear, the U.S. economic recovery, there have been some weakness, out of consideration to avoid a relapse into recession, the Fed can only re implementation of the quantitative easing.
6,000 billion U.S. dollars the Fed bought Treasury plan, basically in line with market expectations. From now until June, the Fed will purchase an average of about 75 billion U.S. dollars per month, the Fed said the Treasury purchase plan will be regularly assessed on the economy and financial markets. The average age of its purchase of government bonds of 5 to 6 years, suggesting that the Fed intended to reduce long term capital through the financing costs to increase business confidence, and promote labor market recovery.
In a public statement after the Federal Reserve, the financial market reaction is more moderate, non US currencies, led by the euro there was a certain gain, 1.41 dashed line euro, Australian dollar to trade around 1.0, but yesterday morning appeared non US currencies some callbacks. Market was relatively flat, mainly because of the Fed s statement is consistent with market expectations, but before the market digested the Fed has been gradually re liberal policy implications.
The global economy, the downside risks to the U.S. economy because the Fed again lowered the quantitative easing, the economy of Australia and New Zealand but probably because of the gradual U.S. economic recovery in 2011 and 2012, faced with a certain degree of upside risk. The major Asian economies will face the risk of large capital inflows.
From a long time, the Fed once again means that the Fed easing, weak dollar policy of continuity, we maintain long term bearish dollar view. Non US currencies, the euro, Australian and New Zealand will be strong. The prices of commodities and agricultural products will also be supported.
The global economy because of the weak dollar will also bring higher prices of commodities and agricultural products face a more serious risk of inflation, although this is expected from the extent consistent with the Fed, but for better economic performance of Asian economies and economies in Oceania for rising inflation may bring more serious problems, which will force these economies continue to the next one to two years to tighten monetary policy.
Meanwhile, long term interest rates by lowering the Fed intended to stimulate the economy, the dollar will further flattening the yield curve, the dollar s low interest rates will last longer, which would lead to the U.S. dollar and other currencies interest rate further. The carry trade against the dollar will gradually rise, this will bring a global cross border capital flows. Now it seems that the global speculative capital is still popular in Asia and Oceania economies, massive capital inflows not only bring the appreciation of the currency will also bring local asset prices, and even asset bubbles. For these economies, the monetary authorities, the reasonable and orderly monetary policy tightening, and effective financial regulation is a required course for some time.
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