US Federal Reserve may opt for a mini QE3: Economist

It may not be that the US Federal Reserve has run out of all the options, yet; but the fact remains that it has nothing much left to do. The global economic crisis looming, the markets are looking to the Federal Reserve with an intent in their eyes which is too seductive to ignore. It reminds of a battered wife cuddling to her husband coyly with an intention for redress and a panacea; a solution.

So can we expect a QE3 (Quantitative Easing 3)?

“Slim chances exist. But we cannot expect the Federal Reserve to go overboard and do something which falls short of vigilance. In place of $2000bn in QE injection requirements, the Fed may, for this time opt for $300 billion-$500 billion in stimulus.” said Martin Patrick, a Kochi-based economist.

A policy meeting by US Federal Reserve is on cards this September.

But it is another question, if the stimulus would help find a solution.

“The Democrats, when they should be employing an offensive strategy, has gone defensive and in place of opting for aggressive fiscal stimulus package, is signing up for austerity.” Martin said.

Another round of QE3 or mini-QE3 could help create some jobs. But it may not be a permanent solution. Fiscal measures could be the key, he said.

So, what are the other policy options before the Fed?

“The Fed may go in for open market operations, can opt to buy and sell securities. But, given the ambience it is difficult to assume that such a move can be successful.” Martin said over phone.

But isn’t the demand for US bonds going up?

“Not as big as it used to be”, he said. “Even India and China are shying away, in that the data does not give a robust picture.” He added.

So, how about Europe?

“In the current quarter, we may expect to see the problems aggravating for Spain and Italy. In UK, the problem is already out” he said.

“Strengthening inter-state trade among the European Union members can help get some leverage for the countries in the region.”

Will it help, if Germany and France ditch Euro and return to their respective currencies, leaving countries like Greece to hold Euro? Some economists have already pointed out the benefits, such a move could bring about.

“It would definitely strengthen economies of Germany and France.” He said. “But, it would aggravate the problems for Greece and other debt-stricken nations.” He concluded.

As published in: http://www.commodityonline.com/news/US-Federal-Reserve-may-opt-for-a-mini-QE3-Economist-42124-3-1.html