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Economy
In reply to the discussion: Weekend Economists Batten Down the Hatches October 26-28, 2012 [View all]Demeter
(85,373 posts)20. How an improving economy makes new Fed policies more potent
http://www.washingtonpost.com/business/economy/how-an-improving-economy-makes-new-fed-policies-more-potent/2012/10/22/473998b2-1c4d-11e2-ad90-ba5920e56eb3_story.html
Federal Reserve Chairman Ben S. Bernanke and the rest of the Federal Reserve policy committee gather again this week for what is sure to be a less dramatic meeting than last month, when they unveiled a new program of bond buying to try to drive down unemployment.
But while major changes in policy will probably be scarce when the Federal Open Market Committee unveils its handiwork Wednesday afternoon, the events of the six weeks since its last big change have shown the real importance of the Feds new approach to policy. The economic data has improved since that Sept. 13 announcement. At the time of the meeting, for example, Macroeconomic Advisers (which has an economic forecasting model similar to that used internally by the Fed) estimated that third-quarter gross domestic product rose at a 1.5 percent annual rate; now it estimates that number to be 2 percent. The unemployment rate plunged to 7.8 percent in September from 8.1 percent in August. Housing starts, retail sales and consumer confidence numbers have all soared.
That improvement would seem to call into question the rationale for the Feds decision to pump $85 billion a month into the economy, commonly known as QE3 because it is the third round of quantitative easing. Maybe growth is stronger than Bernanke & Co. realized at the time of that meeting, and they were faked out by a few months of bad data...Quite the contrary. Even leaving aside that some other indicators of the economys recent performance arent so hot (particularly measures of business investment and hiring), the uptick in growth could make the Feds decision even more potent...
TALK ABOUT SHELL GAMES!
Federal Reserve Chairman Ben S. Bernanke and the rest of the Federal Reserve policy committee gather again this week for what is sure to be a less dramatic meeting than last month, when they unveiled a new program of bond buying to try to drive down unemployment.
But while major changes in policy will probably be scarce when the Federal Open Market Committee unveils its handiwork Wednesday afternoon, the events of the six weeks since its last big change have shown the real importance of the Feds new approach to policy. The economic data has improved since that Sept. 13 announcement. At the time of the meeting, for example, Macroeconomic Advisers (which has an economic forecasting model similar to that used internally by the Fed) estimated that third-quarter gross domestic product rose at a 1.5 percent annual rate; now it estimates that number to be 2 percent. The unemployment rate plunged to 7.8 percent in September from 8.1 percent in August. Housing starts, retail sales and consumer confidence numbers have all soared.
That improvement would seem to call into question the rationale for the Feds decision to pump $85 billion a month into the economy, commonly known as QE3 because it is the third round of quantitative easing. Maybe growth is stronger than Bernanke & Co. realized at the time of that meeting, and they were faked out by a few months of bad data...Quite the contrary. Even leaving aside that some other indicators of the economys recent performance arent so hot (particularly measures of business investment and hiring), the uptick in growth could make the Feds decision even more potent...
TALK ABOUT SHELL GAMES!
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