The U.S. Federal Reserve announced on October 11 that it would continue to ease the economy by buying Treasury bills at a minimum of $60 billion per month over the next two months. Although the purchasing rate can fluctuate between 0% and 5%, the central bank anticipates that the easing plan will last at least until Q2 2020. Jerome Powell, Fed chair, and his partners stressed that they don’t want media to label the purchasing plan as another QE.
The Fed approves the purchase of $60 billion worth of Treasury Securities each month, but don’t call it QE
On Friday, the Fed informed the media that it will continue to purchase large amounts of securities to stimulate the U.S. economic recovery. This follows two interest rate reductions and the printing last month of $128 billion. The Fed also repurchased Treasury securities at specific repo agents. This new printing scheme will add $60 billion to the monthly cost of the Fed’s Treasury securities repurchases from specific repo agents. However, the buying will continue until the second quarter 2020. The central bank stated that the number and timing of planned purchases for November would be announced every ninth month. Along with large-scale repurchase agreements, the $60 billion per month will be used to pay for Treasury bills. Since 2012, the New York Fed branch has managed the repos. This will continue until 2019. Since 2012, when the Fed printed approximately $85 billion per monthly in Treasury securities, this Fed branch has not purchased them. Check out more about Charity Coin
The Fed plans to inject $60 billion per month into the economy
Fed chair Jerome Powell.
The central bank used to call the process quantitative ease (QE) back then. This is the act of buying large-scale assets to support the economy’s faltering. Powell and his staff insist on telling the media that current easing isn’t another QE program, even though the Fed is buying assets on a large scale. Because the central bank only purchases Treasury bills, and not other assets such as bonds or mortgages, the Fed wants the public believe that. President of the Federal Reserve Bank of Minneapolis, Neel Kashkari stated that there is no change in the Fed’s policy stance. He explained that the Fed’s current method of easing gives it a lot of flexibility.
The Fed and other central banks cannot solve the problems they created
Many economists think the Fed’s latest round easing tactics is very similar to QE. Others believe that the central bank’s schemes can be dangerous. Author at Mises Institute Daniel Lacalle recently described how devastating the monetary easing/repo crisis is for the economy. Lacalle’s essay explains that repo lending spikes in the Fed are not common, but that normalization takes many days. Lacalle claims that it is even more extraordinary to see the Federal Reserve need to inject hundreds upon billions of dollars in just a few days in order to offset the unstoppable rises in short-term interest rates. Lacalle claims that liquidity is plentiful, the thirst for yield is great, and financial players are more financially solvent than they were years ago. The author says that this is false. Lacalle’s paper also adds: