The U.S. Federal Reserve stated on October 11th that it would increase easing in the economy by purchasing Treasury notes at $60 billion per monthly for the next two years. While the purchasing rate may decrease or increase, the central banks expects the easing plan that will last until at most Q2 2020. Jerome Powell, Fed chair and his partners also stressed that the central bank doesn’t want the media calling the purchasing plan another QE.
The Fed Approves $60 Billion in Treasury Securities Purchases per Month, but Don’t Call It QE
Friday’s statement by the Fed to the media stated that it intends to continue buying large quantities of securities in order stimulate the U.S. Economy. Following the two interest rate cut and $128 billion printing, the Fed said Friday that it will continue to buy large amounts of securities in order to stimulate the U.S. economy. New printing plans involve another $60 billion per monthly from now to November’s end, but buying will not cease until the second quarter in 2020. The central bank said that the number of purchases made after November will be announced each month on the ninth. In addition to large-scale repurchase deals, $60 billion per month will go toward Treasury bills. The repos have been managed by the New York Fed Branch, and will continue to be until 2019. Since 2012, when it printed around $85 billion per month, the Fed has not bought Treasury securities in this way. Check out more about Charity Coin
The Fed Will Inject $60 Billion Every Month into the Economy
Fed chair Jerome Powell.
Back then, the central bank did not hesitate to call the process QE (quantitative easing). This basically refers to the purchase of large-scale assets in an effort to boost the economy. Powell and his staff insist that the current QE program is not being used. However, the Fed is still purchasing large amounts of assets. This is because Treasury bills are the only thing the central bank purchases, not bonds or mortgages. Neel Kashkari is the president of Federal Reserve Bank of Minneapolis. He stated: “It’s no change in our policy position.” Kashkari said that the Fed’s current approach to easing “gives [the Fed] lots of flexibility.”
Federal Banks like the Fed can’t solve the problems that they have created
Many economists believe that the Fed’s newest round of easing tactics meets the definition QE. However, some believe that the central banks’ schemes are dangerous. The author of Mises Institute’s Daniel Lacalle recently spoke out about the economic damage that monetary easing, and the repo crisis, can cause. Lacalle’s essay shows that sudden repo lending spikes do not occur often in Fed operations. However, the fact that it takes days for normalization to take place is quite unusual. Lacalle asserts that “[It is] even more uncommon to see that Federal Reserve needs to inject hundreds and billions in a matter of days to offset an unstoppable increase in short-term rate.” Right? “Because liquidity has become abundant, the need for yield is immense and financial players have become more financially sound than they were years back, right?” “Wrong,” writes the author. Lacalle’s paper includes: