Federal Reserve Meeting: The Most Important Vote This Week

Share
Copy

It can be ineffective. Most economists believe QE is most effective in the initial shock value. There is likely a point of diminishing returns where the X-trillionth dollar poured into the system doesn't stimulate as much as the first dollar put in.

On the other hand, if it's too effective, it can spur hyper-inflation where prices jump quickly as the value of the dollar drops.

What will the Fed likely do? The members of the Fed's Open Market Committee have been signaling their desire to introduce a new round of QE during the past month and half.

The market believes Bernanke & Co. will announce a program to buy up Treasury bonds a few $100 billion at a time over the next year. Many people believe they'll say they will purchase between $1 trillion and $2 trillion worth of Treasuries.

The buying program would likely be dependent on the Fed's read of current economic conditions. If employment begins to ramp up, the Fed would likely not commit the full amount. If things deteriorate, the Fed could speed up the purchases.

But keep in mind, all the talk about QE has set expectations. And when Wall Street's expectations are not met, there are real repercussions.

"Everyone has run ahead of the FOMC, but now find themselves less and less sure because of the lack of specifics," said Bob Eisenbeis, chief economist at Cumberland Advisors. "All of this means that the Fed can't simply sit pat and let the market do its work for it. The FOMC not only has to deliver but must do so with sufficient specifics that markets gain more certainty about the future course of policy."

We'll get the specifics on Wednesday afternoon at around 2:15 p.m. ET when the post-meeting statement is released. We won't know QE2's effectiveness for months -- just keep watching that jobs report.

-- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466. -- This embed didnt make it to copy for story id = 12013466.
Page
  • 1
  • |
  • 2
Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...