The Stimulus Steam Is Going To Cool Off

The stimulus steam is going to cool off

The stimulus steam is going to cool off. The indications are coming from the Federal Reserve. It has been keeping alive the American economy. Growth has been slow but despite this it seems at the next key meeting the stimulus pedals will be eased off.

A good number of economists opine that the Federal Open Market Committee will sign off the $600 billion asset purchasing programme that has in any case been scheduled to end by 30th June. Very few experts think that extra stimulus will follow this quantitative easing or QE2.

Last November the programme of buying Treasury bonds had been announced by the FOMC. The aim was to lower as much as feasible, long and medium term interest rates. At that time Federal Reserve had exhausted its fire power. The interest rate was lowered by the central bank to nearly zero for two and half years to keep low the rates of short-term rates.

Those monitoring the signals coming from FOMC are waiting to note if the language of the Federal Reserve undergoes any change. Everybody is aware of the deadline of 30th June.

Patrick O"Hare of Briefing.com said, "There is a burgeoning belief that the Fed will find a new way to communicate that interest rates will stay down longer than is already expected. Either way this FOMC meeting has added importance given its timing in relation to the Greek situation, the unsettle debate in the US on raising the debt ceiling, and the soft economic date of late".

It is two years since the recession has ended but economic growth is "desperately low" as observed by Ben Bernanke the chairperson of the Federal Reserve.

In the first three months of this year spiking oil prices put pressure on the economy. In the running second quarter commodity prices are high and this is having a negative impact on production. The tsunami has caused supplies coming from Japan to be disrupted; this is particularly harming the auto and the electronics segments.

It is expected that the FOMC will give the confirmation at the end of the meeting that the Federal Reserve will be continuing to reinvest principal payments from the mortgage holdings into securities of the Treasury (long-term). This would enable the Federal Reserve to extend its support to the hobbling economy from further leaking. In a talk to the bankers of Atlanta on 7th June, Ben Bernanke gave hints the economy would continue to be regularly infused and this would not be cut off soon.

by: Julie Thompson

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