Experts: More Fed Intervention Isn't Likely to Do Much

Sunday, 03 Jun 2012 12:05 PM

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May's dismal jobs report has rekindled talk the Federal Reserve may stimulate the economy to spur more growth and hiring.

The economy created a net 69,000 nonfarm payroll jobs in May, far below estimates for 150,000. April and March numbers were revised downward as well.

If the U.S. central bank were to roll out stimulus measures, they probably wouldn't help that much anyway, experts say.

Editor's Note: The Final Turning Predicted for America. See Proof.

Since the downturn, the Fed has juiced the economy via two rounds of stimulus measures known as quantitative easing, known widely as QE1 and QE2, which are asset purchases from banks designed to fill financial institutions — and the economy — with job-creating liquidity.

QE1 saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage securities, while QE2 saw the central bank snap up $600 billion of Treasury bonds, the latter of which wrapped up on June 30, 2011.

Such moves, often referred to as printing money out of thin air, are used to jolt the economy when interest-rate cuts don't work, and are generally seen as tools used when the country is headed for trouble.

The jobs market clearly is in trouble, but don't expect the Fed to jump in since quantitative easing works by pushing long-term interest rates down to ensure expansion.

Long-term rates are already low thanks to the European debt crisis that has driven investors flocking to the U.S. Treasury, with the yield on the 10-year note dipping to a record low of 1.439 percent, and the 30-year down to 2.51 percent.

"I just do not see how anyone would look at the current situation, with 10-year Treasury yields below 1.5 percent and 30-year yields near 2.5 percent, and say that there is a pressing need to try to artificially mash yields even lower,” Pierpont Securities chief economist Stephen Stanley write in a note, according to CNBC.

"The only rationale for further easing at this point is the thoughtlessly mechanical 'push the button' mentality that says we ease as long as the unemployment rate is too high."

Other market watchers point out that since the Federal Reserve has already pumped $2.3 trillion into the system via QE1 and QE2, it won't rush to roll out QE3 unless it is sure the economy is closer to dire straits.

"This alone doesn’t bring the Fed back in—but this combined with Europe brings the Fed back in,” says Mesirow Financial chief economist Diane Swonk, referring to the May jobs report, CNBC adds.

“The Fed needs to keep its powder dry for a potential financial crisis (from Europe), and that possibility just went up. This underscores that we’re not an island."

Whether the Fed moves or not remains to be seen, but the numbers do paint a bleak picture for both the economy and President Barack Obama.
"There are no easy explanations for May; the numbers suggest a far weaker economy than do other recent data," says Sophia Koropeckyj at Moody's Analytics, the AFP newswire reports.

"The numbers do not bode well for the president's re-election," she adds.

Editor's Note: The Final Turning Predicted for America. See Proof.




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