...the Bank of Canada? QE2 and implications for Canada
Last month, the Federal Reserve launched a new program to buy US$600 billion in longer-term treasury securities by the end of the second quarter of 2011.3
It is doing so because, even though its policy rate has been effectively zero for two years, the Fed is still missing both legs of its dual mandate to foster price stability and maximum employment. Core inflation is at an all-time low and unemployment is unusually high. The spectre of large structural unemployment threatens.
QE2 is designed to support the economy through easier financial conditions. In theory, by putting downward pressure on longer-term U.S.-Treasury rates, the program stimulates interest-sensitive sectors of the economy such as housing and business investment. Portfolio rebalancing should encourage investors to shift towards riskier assets such as corporate debt and equities. This in turn increases financial wealth, which supports spending. In contrast, some financial investment may shift to harder assets such as commodities, which would reduce the disposable incomes of Americans.
The exchange rate is another important channel. As returns on U.S. assets fall, investors could seek alternative investments outside the country, weakening the currency, boosting exports and curbing imports.
Finally, and importantly, expectations of higher growth should help increase inflation expectations towards a range consistent with the Fed’s mandate. This keeps real interest rates down, which encourages investment and spending.
Of course, the exact impact of the program is hard to discern as QE2 is not the only news in financial markets. Since the policy was first mooted by Chairman Bernanke in August, all the expected effects have been evident, supporting the Fed’s rationale. Since the November announcement, U.S. financial conditions have improved only slightly, reflecting the conflicting forces of some better U.S. data, heightened risk aversion caused by the European turmoil, possibly revised expectations regarding the ultimate size of the program, and the announcement of a major new fiscal package. The overall impact of QE2 may be more modest than previous interventions when market dislocations were more severe.4
The Bank of Canada anticipated the Fed’s latest move when we published our October projection (not hard to do, given the openness with which the Fed discussed its plans). Overall, we expect the net impact on Canadian GDP to be positive but small. This balances the impact of stronger U.S. growth on demand for Canadian goods and services, as well as on our terms of trade, with the possibility of further drag on non-commodity exports arising from the persistent strength of the Canadian dollar.
Ray
You mean you can't understand what you read unless it is under a sentence
Voice of
Read this slowly if you have to OK ...........
The Bank --- the bank of Canada ( got it read that as many times as you need to )
Said --- ( who said it --- the bank of Canada) that the Fed -- ( federal reserve in the US -- go slow if you have to ) --- that it was missing both legs of its mandate
A mandate is a purpose --- a thing they are supposed to be doing ( read it again if needed)
Got the connection now there little buddy
Someone said something and that someone is the BANK of CANADA
Now read the quote ( that is when you write down what someone says word for word)
Try again and don't forget to sound out the words if you need to little engine that could
Voice
The bank of Canada link included made a statement -- about the Fed -- I am asking if YOU can tell me if you agree with it or not -- Not that hard
Very simple indeed Now if you don't understand the connection between the quote and the entity that made the quote in context to a question about the content of the quote I can't help you
Last month, the Federal Reserve launched a new program to buy US$600 billion in longer-term treasury securities by the end of the second quarter of 2011.3
It is doing so because, even though its policy rate has been effectively zero for two years, the Fed is still missing both legs of its dual mandate to foster price stability and maximum employment. Core inflation is at an all-time low and unemployment is unusually high. The spectre of large structural unemployment threatens.
QE2 is designed to support the economy through easier financial conditions. In theory, by putting downward pressure on longer-term U.S.-Treasury rates, the program stimulates interest-sensitive sectors of the economy such as housing and business investment. Portfolio rebalancing should encourage investors to shift towards riskier assets such as corporate debt and equities. This in turn increases financial wealth, which supports spending. In contrast, some financial investment may shift to harder assets such as commodities, which would reduce the disposable incomes of Americans.
The exchange rate is another important channel. As returns on U.S. assets fall, investors could seek alternative investments outside the country, weakening the currency, boosting exports and curbing imports.
Finally, and importantly, expectations of higher growth should help increase inflation expectations towards a range consistent with the Fed’s mandate. This keeps real interest rates down, which encourages investment and spending.
Of course, the exact impact of the program is hard to discern as QE2 is not the only news in financial markets. Since the policy was first mooted by Chairman Bernanke in August, all the expected effects have been evident, supporting the Fed’s rationale. Since the November announcement, U.S. financial conditions have improved only slightly, reflecting the conflicting forces of some better U.S. data, heightened risk aversion caused by the European turmoil, possibly revised expectations regarding the ultimate size of the program, and the announcement of a major new fiscal package. The overall impact of QE2 may be more modest than previous interventions when market dislocations were more severe.4
The Bank of Canada anticipated the Fed’s latest move when we published our October projection (not hard to do, given the openness with which the Fed discussed its plans). Overall, we expect the net impact on Canadian GDP to be positive but small. This balances the impact of stronger U.S. growth on demand for Canadian goods and services, as well as on our terms of trade, with the possibility of further drag on non-commodity exports arising from the persistent strength of the Canadian dollar.
Ray
You mean you can't understand what you read unless it is under a sentence
Voice of
Read this slowly if you have to OK ...........
The Bank --- the bank of Canada ( got it read that as many times as you need to )
Said --- ( who said it --- the bank of Canada) that the Fed -- ( federal reserve in the US -- go slow if you have to ) --- that it was missing both legs of its mandate
A mandate is a purpose --- a thing they are supposed to be doing ( read it again if needed)
Got the connection now there little buddy
Someone said something and that someone is the BANK of CANADA
Now read the quote ( that is when you write down what someone says word for word)
Try again and don't forget to sound out the words if you need to little engine that could
Voice
The bank of Canada link included made a statement -- about the Fed -- I am asking if YOU can tell me if you agree with it or not -- Not that hard
Very simple indeed Now if you don't understand the connection between the quote and the entity that made the quote in context to a question about the content of the quote I can't help you