Thursday, 13 December 2012

Fed unveils new tools, more monetary stimulus

The Federal Reserve introduced yet more policy measures after its latest monetary policy meeting on Wednesday. Bloomberg reports:

Chairman Ben S. Bernanke moved the Federal Reserve further into uncharted policy territory in combating joblessness by tying the bank’s interest-rate outlook to unemployment and inflation, while committing to an even faster expansion of the central bank’s balance sheet.

The actions on the eve of the Fed’s centenary year underscore Bernanke’s hallmark commitment to experimentation and forceful action, derived in part from his research showing too little monetary stimulus produced large economic costs for the U.S. in the 1930s and for Japan in the 1990s. He called the current state of the labor market, with unemployment at 7.7 percent, “an enormous waste of human and economic potential” and said the benefits of more bond buying outweigh the potential risks...

The additional Treasury purchases will follow the expiration at the end of this year of Operation Twist, in which the central bank each month has swapped about $45 billion of short-term Treasuries for an equal amount of long-term debt.

Despite the additional monetary stimulus, markets ended the day little changed.

U.S. stocks erased gains as optimism about the Fed’s additional asset purchases faded and investors focused on the budget deadlock in Washington. The Standard & Poor’s 500 Index closed up less than 0.1 percent at 1,428.48 in New York, after earlier climbing as much as 0.8 percent.

It was a similarly story in Asia today, with Japanese stocks rising 1.15 percent but most other markets making smaller gains. Chinese stocks even fell 0.36 percent.

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