WASHINGTON — At their meeting earlier this month, Federal Reserve officials discussed possible future adjustments to the central bank’s monthly bond purchases to boost the economy.
The Fed on Wednesday released minutes of its Nov. 4-5 meeting revealing that while officials believed that no changes were needed to the bond purchase program at that time, “they recognized that circumstances could shift to warrant such adjustments.”
The Fed since June has been buying $120 billion in bonds each month to keep downward pressure on long-term interest rates as a way of giving the economy a boost as it struggles to emerge from a deep recession.
The purchases have included $80 billion a month in Treasury bonds and $40 billion in mortgage-backed securities.
With the economy showing signs of slowing in the face a resurgence in coronavirus cases and a return to shutdowns in some areas, there has been market speculation that the Fed could decide to boost the size of its monthly purchases.
The minutes show that while no decision was taken on what to do or when, Fed officials were keeping their options open. Some analysts believe the Fed will make an announcement on boosting the bond purchase program at its next meeting on Dec. 15-16, especially if there has been no movement by Congress to provide more economic relief to individuals and businesses.
The minutes said that many Fed officials “judged that asset purchases helped provide insurance against risks that might reemerge in financial markets in an environment of high uncertainty.”
Concern has been growing among economists that the economy is slowing after an initial rebound this summer and could even topple into a double-dip recession in the early part of 2021 if Congress does not replenish expiring support programs.
At the White House Wednesday, Peter Navarro, one of President Donald Trump’s economic advisers, told reporters that a “sober” reading of the economic recovery shows “we are facing … a chasm ahead for millions of Americans unless there can be a bipartisan” deal to provide further economic relief.
The minutes released Wednesday covered the Fed’s Nov. 4-5 meeting, held just after the November elections, and were released with the customary lag of three weeks.
At the meeting, the central bank kept its benchmark interest rate at a record low near zero and signalled that it was prepared to do more if needed to support the economy.
A multitrillion-dollar stimulus effort enacted in the spring has helped support millions of Americans who have been thrown out of work and provided further assistance to struggling individuals and businesses.
But many of those programs have expired and jobless benefits are due to run out for millions of Americans by the end of this year.
Federal Reserve Chairman Jerome Powell had said at a news conference following the two-day meeting that Fed officials had discussed whether and how a bond buying program might be altered to provide more economic support.
In addition to increasing the size of the program, the Fed could decide to alter the composition of the bonds purchases to focus on buying long-term securities as a way of putting added downward pressure on long-term rates.
AP White House reporter Kevin Freking contributed to this report.
Results Of QE Benefit Stock Prices More Than Economy, Study Finds – Forbes
Quantitative Easing (QE) has been a focus of American and British monetary policy since 2008. It largely continues to this day, with some modifications. Other central banks from Japan to Switzerland are following somewhat similar policies. However, recent research suggests that the main result of the policy is to push up stock prices without necessarily impacting the actual economy. If true, this is a problem since central bankers may have inadvertently triggered an asset price bubble without doing much to positively impact the metrics that they are typically targeting such as unemployment, growth and inflation.
In their paper titled, Did Quantitative Easing only inflate stock prices? Researchers from Henley Business School and the University of Reading explored the impacts of QE policies from central banks. They do this through building an economic model to capture the U.K. and U.S. experience with QE over recent years.
Of course, determining linkages from monetary policies is complex, but there is now at least a decade of data across countries which makes determining the effects a little easier. They find that though QE may have improved employment, it hasn’t done much else for the real economy. Also, in addition to pushing up stock prices QE may also have reduced volatility in the stock market and improved liquidity.
If QE has created a stock-price bubble it’s a very long-lasting one. For example this piece from the UK’s Guardian newspaper outlines the arguments. Namely, that valuations are at excessive levels and growth is mediocre at best. However, the piece was written in 2014 and even despite extreme pandemic-related volatility in the interim, the bubble hasn’t burst yet almost 7 years later. Though equally, critics could point out that though any bubble hasn’t yet ended, nor has QE.
Nonetheless, the researchers argue that more could be done to make sure that QE targets the real economy. If the central banks are going to massively increase their balance sheets then it is perhaps more useful if the resulting spending goes into projects that help the real economy, rather than just boost stock prices. Of course, if rising stock prices had coincided with gains for the real economy, that would be more beneficial, but it is not the conclusions the researchers come to.
Economic models such as this are challenging, because correlation is not the same as causation and though we now have more of a historical perspective on the impacts of QE, the fact that QE hasn’t really ended means we perhaps still don’t know the full story. If and when QE should unwind, we may be able to better form a view as to its full impact. For now, that seems unlikely and it does appear that though the economic impact may be mixed, QE is perhaps one contributor to the strong run that we’ve seen in markets over recent years.
Canadian dollar rises as investors weigh U.S. stimulus prospects
TORONTO (Reuters) – The Canadian dollar edged higher against its U.S. counterpart on Monday as investors weighed the prospect of additional U.S. economic stimulus, with the currency steadying after a large decline on Friday.
The loonie was trading 0.1% higher at 1.2717 to the greenback, or 78.63 U.S. cents, having traded in a range of 1.2687 to 1.2736.
On Friday, the Canadian currency weakened 0.8%, its biggest decline in nearly three months, as new COVID-19 restrictions in China weighed on oil prices. Oil is one of Canada‘s major exports.
U.S. crude prices dipped 0.2% to $52.15 a barrel on Monday as worries about demand due to renewed lockdowns competed with support from U.S. stimulus plans.
Officials in President Joe Biden’s administration tried to head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive on a Sunday call with Republican and Democratic lawmakers.
Biden and Canadian Prime Minister Justin Trudeau agreed to meet next month, the prime minister’s office said on Friday following a call between the two leaders in which they vowed to join forces to combat the pandemic in North America.
Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year eased 2.1 basis points to 0.825%, extending a pullback from a 10-month high on Thursday at 0.892%.
Canada‘s GDP data for November is due on Friday, which could help guide interest rate expectations.
Last week, the Bank of Canada held its key overnight interest rate at 0.25%, saying the arrival of a COVID-19 vaccine and stronger foreign demand is brightening the outlook for the Canadian economy in the medium term.
(Reporting by Fergal Smith; Editing by Paul Simao)
Canada worried by Biden’s ‘Buy American’ plans, will make issue a priority
OTTAWA (Reuters) – Canada is worried by U.S. President Joe Biden‘s plans for a “Buy American” program to boost domestic industry and it will be a priority for talks with the new administration, Finance Minister Chrystia Freeland said on Monday.
The two neighbors have highly integrated economies as well as one of the world’s largest bilateral trading relationshipsand Canada fears its firms could lose out if U.S. procurement rules are tightened.
Biden is expected to sign an executive order later on Monday to increase domestic manufacturing and close loopholes in existing provisions, which structure the $600 billion in goods and services the federal government buys each year.
“I am concerned. We are always concerned by ‘Buy American’ … for sure that is going to be an issue very very high on our agenda in our work with the Biden administration,” Freeland told reporters.
Canadian governments have had to deal with ‘Buy American’ provisions from previous U.S. governments only to discover “the devil is very often in the details,” she added.
“We find we are very often able to explain to our American partners that trade is in the mutual interests of Canadians and of Americans,” she said.
Biden’s first conversation with a foreign leader last Friday was with Canadian Prime Minister Justin Trudeau, who raised the “Buy American” issue and urged the President to “avoid unintended consequences that can hurt both countries,” a Canadian government source said.
(Reporting by David Ljunggren; Editing by Chris Reese and Paul Simao)
Results Of QE Benefit Stock Prices More Than Economy, Study Finds – Forbes
Boston Consulting CEO on the ties between business and politics – Marketplace
Canada braces for Biden’s expected executive order enacting ‘Buy American’ plan – Global News
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