On Wednesday, December 12, 2012, Federal Reserve Chairman Ben Bernanke announced further easing measures by increasing the amount of treasury purchases, in addition to the current mortgage-backed security purchases in order to put downward pressure on interest rates and reduce unemployment. The new policy has a nickname, “QE-4 Ever”, as noted by Bloomberg.
The 75 minute press conference by Bernanke allowed economists and journalists in the audience to analyze the Fed’s new measures in regard to its treasury purchases. Bernanke announced that there will be an additional $45 billion purchase in U.S. treasuries on top of the current monthly $40 billion in mortgage-backed securities purchases, thus increasing the total printing to $85 billion per month by the central bank. The goal for the Fed is to reduce unemployment to 6.5%, while keeping inflation near the 2%-2.5% objective. The Fed has also continued its decision to allow more transparency in its decisions, in regard to the FOMC and interest rates.
The audience had much to ask the Chairman, including whether this will be a devaluation of the dollar, if this is a bond bubble, and whether or not the Chairman has received word from Obama in regard to a further extension of his term. Bernanke assured the audience that the Federal Open Market Committee’s decision to increase the easing measures is in the best interest of the economy, and that this is only temporary. Bernanke stated that he underestimated the growth in the economy, yet it is continuing to grow at a moderate pace that is not suitable enough. In addition, Bernanke has received no word from the President in regard to a term extension.
Inflation seems to be the big concern upon Austrian economist, not so much Chicago, while deflation and low demand is the concern of the mainstream. Lending has increased due to the Fed’s downward pressure on interest rates, which is stimulating the already bolstered housing market. The Case-Shiller index has shown signs of improvement, likely due to the Fed’s low interest rates and relaxed lending standards. Concerns of a bond bubble are popping up, in addition to the Fed’s underestimation of inflation. The Fed’s track record continues to receive high expectations, although their predictions have seemed off base.