The market does not seem to want to acknowledge the improvement in the U.S. economy.
Slightly different from the market, but in the eyes of the Fed, the U.S. economic conditions have improved significantly.
Ben Bernanke, chairman of the U.S. Federal Reserve (Fed) may be a sign that the Fed was going to gradually reduce the pace of program buying assets worth $ 85 billion a month when he appeared at a press conference Wednesday this week. However, Mr. Bernanke may be added that the following specific actions will depend on what happens with the economy.
Fed Chairman is a dual problem of communication. The market does not seem to want to acknowledge the improvement in the current economy, it is intended to lead Fed QE3 rate reduction. But they also think that any rate relaxation dynamics program of quantitative easing implies that the Fed is no longer willing to support the economic recovery as before.
Mr. Bernanke can both get rid of the misconception, by combining an optimistic message about the signs of economic recovery and the message that reducing the level of stimulus rate also depends on reform pace improvement of the economy and everything is to increase interest rates.
At the start of QE3 in September last year, the Fed said it would continue to buy the property until the "significant improvement" in the outlook of the labor market. Since then, two major developments towards reducing the ability to beat Fed asset purchases.
The first is the main indicator of the labor market has improved. The Fed's forecast for the unemployment rate at the end of 2013 was reduced from 7.75% to 7.4% and is still falling. The average salary increase the first 6 months of this year was 194,000 compared to 130,000 in the past 6 months QE3.
Monthly payroll has become less volatility. The economy is through tax increases and federal spending cuts. Although the market has not been acknowledged, but the improvement is very significant.
Still a dark side in the labor market, which is the metric measure of market dynamics as the rate of hiring, employment status and give part-time workers hardly improved. But that was partly offset by the second movement.
When the Fed starts QE3 program last fall, the Central Bank has developed based on the assumption that many people give up looking for work will return to the labor market as the economy improves. That could still happen, as an indication in the report of the most recent done, but a deeper study of the Fed shows, job seekers line back tends to stabilize.
Therefore, many Fed officials think that an increase of 200,000 jobs per month actually makes more sense than what was seen before, and all you have to do is keep the rate unemployment increased.
"Without more unemployed people to get jobs back then at least we should do something for the crowd rising unemployment", a Fed official said.
In fact, keep pumping money even when the labor market is improving how the Fed is doing. This is like the fire brigade pumping faster even when the fire is turned off. At some point, even more water damage than the remaining flames. But that does not mean the Fed will turn off the water and let buildings catch fire again.
However, there are still a few problems. A low inflation is a surprise. Inflation is low geographical balance to confidently proceed Fed pumping more money into the economy. What if it does not always move towards the target of 2% (currently 1.1%), it means that the injection line has not warmed economy. Due to such low inflation, so far, it is only a small parameter in the calculation of the Fed, even though inflation target for a number of the Central Bank.
Another problem is the increase in bond yields, triggered by the reaction of the market with the ability to narrow the Fed's stimulus package, which will also lead to tighter financial conditions. The market can not afford to delay action by the Fed, but the Fed has the ability to make prudent before making a formal message.
No comments:
Post a Comment