FEDERAL RESERVE : Bernanke maintains the current strategy

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02/28/2013 | 03:02 pm
A week after the statement suggesting that premature cessation of quantitative easing was under consideration, the President of the Federal Reserve took the opportunity to clarify his statements before the U.S. Senate for his semi-annual speech.
What is the current situation?
 
It must first be remembered that it is nearly $ 85 billion of assets the Fed buys every month. Since the establishment of the first Quantitative Easing and the various operations Twist, the institution has nearly 1645 billion or 15% of the federal marketable debt.
However, more and more Fed members are concerned that this continued accommodative policy, fearing an inflationary slippage which would lead to new financial instability.
 

Where does Fed go?
 
Thus, several governors would now like to see more flexibility in the amounts allocated, in other words reduce cash flow, seeing the economic situation is improving day by day. However, everyone seems to be willing to keep rates within a range of 0 to 0.25%, also conditioned to a return of the unemployment rate below 6.5%.
 
However, Ben Bernanke seems determined, nevertheless, to continue the current strategy to get a strong rebound of the U.S. economy.
 

What should we conclude?
 
While one could think of a hardening of speech following several reluctant statements of Federal Reserve's members, the President has made clear continuity of the current strategy welcoming the success of the latter.
 

Evolution of unemployment rate since 2009




Evolution of new home sales since March 2008





For example, these two graphs can show a significant improvement of the economy of the world’s greatest power. The recovery of the U.S. real estate sector (shown here by new home sales), is a strong symbol for a sector that caused the crisis (subprime crisis) and it should be the first to show a recovery.
 

Important deadlines ahead
 
The convergence of these various indicators should not obscure the important deadlines that the U.S. administration will face, starting with the second phase of fiscal cliff.
By this day, if the U.S. Congress have not reached an agreement, on March 1, $ 85 billion of automatic spending cuts will be made and thousands state employees will be unemployed  (700,000 jobs).
 
This date is the beginning of important deadlines coming in the United States including the end of continuing resolution (March 27), allowing the Obama’s administration to implement its budget even before it is approved by Congress. Subsequently, the debt ceiling will be reached again on May 19; a new agreement will be required.
These appointments could lead to political squabbles and causing some jolts in the economy. Well aware of these deadlines in high-risk, Bernanke pursues the current strategy.





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