Review
In the first round of bond purchases between Dec. 2008 and March 2010, the Fed bought $1.7 trillion of mostly mortgage securities, and in the second round between November and June, the central bank snapped up $600 billion of Treasury bonds.
2011-8-11 hold interest rates at zero, and indicated it would keep low rates to stay through at least mid-2013
Outlook
QE3 is an option if there is a significant downturn in the economy or extraordinary stress in financial markets.
Core consumer price inflation rose at a 1.8% year-on-year rate in July. It would be a mistake to signal an inclination to move ahead with another round of asset purchases.
It is a period of wait-and-see
Bernanke may use the speech, 2011-aug-26, to go through the available policy options, which would be remarkably similar to his speech at last year’s Jackson Hole conference. When, is a different matter.
The next round of quantitative easing may feature small monthly purchases instead of the pledge of a large purchase.
This is the approach favored by Harvard University economist Kenneth Rogoff, who called it “classroom” quantitative easing. He wants the Fed to target an inflation rate and promise to buy “whatever it takes” to get there.
“forward guidance” about policy.
Another option Bernanke is likely to discuss is a move to lengthen the maturity of its balance sheet. This would be designed to lower long-term rates. This step may be unnecessary at the moment with 10-year Treasury /quotes/zigman/4868283 10_YEAR -0.66% yields just above 2%, Gertler noted.
The Fed could also lower the interest it pays to banks for excess reserves to zero from 0.25%. But many economists believe that move might have unintended consequences in the short-term money markets.
Fed asset purchases are designed to push investors to buy riskier assets besides Treasurys. But when they have no confidence, they buy gold and foreign assets, and this doesn’t help the economy, Brusca said.
Bernanke ready for action, but when is in doubt - The Fed - MarketWatch
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