{"id":28494,"date":"2012-03-23T12:02:12","date_gmt":"2012-03-23T16:02:12","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/23\/sterilized-quantitative-easing-get-ready-for-qe2-1\/"},"modified":"2012-03-23T12:02:12","modified_gmt":"2012-03-23T16:02:12","slug":"sterilized-quantitative-easing-get-ready-for-qe2-1","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/23\/sterilized-quantitative-easing-get-ready-for-qe2-1\/","title":{"rendered":"Sterilized Quantitative Easing: Get Ready for QE2.1"},"content":{"rendered":"<div align=\"left\"><script type=\"text\/javascript\">\ntweetmeme_style = 'compact';\n<\/script><br \/>\n<script type=\"text\/javascript\" src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\"><\/script>\n<\/div>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-28477\" title=\"Sterilized Quantitative Easing: Get Ready for QE2.1\" src=\"http:\/\/www.investmentu.com\/wp-content\/uploads\/2012\/03\/sterilized-quantitative-easing.jpg\" alt=\"Sterilized Quantitative Easing: Get Ready for QE2.1\" width=\"220\" height=\"220\" \/><\/p>\n<p>The Fed is looking into a new type of quantitative easing that will try to jump-start the economy without jumpstarting inflation. But will it work?<\/p>\n<\/div>\n<p>It was November 2010 when the Fed launched its last quantitative easing program, which we lovingly nicknamed QE2. It fell on mixed reviews \u2013 mainly dependent upon how you like your monetary policy.<\/p>\n<p>We all know the pros and cons of easing. You get elevated asset prices with the fear of inflation. But what if you could keep your cake and eat it, too? What if you could keep this fledgling recovery going without driving up the price of oil?<\/p>\n<p>Well Mr. Bernanke believes he can do just that.<\/p>\n<h2><strong>\u201cSterilized\u201d Quantitative Easing<\/strong><\/h2>\n<p>The Fed is looking into a new type of quantitative easing that will try to jump-start the economy <em>without<\/em> jumpstarting inflation. Analysts said the new approach would allow the Fed to move despite high oil prices.<\/p>\n<p>And here\u2019s the plan. The Fed would make new money to buy long-term mortgage or <a title=\"Long-Term Treasury Bonds, Century Bonds, and Other Bad Ideas\" href=\"http:\/\/www.investmentu.com\/2012\/March\/long-term-treasury-bonds-century-bonds.html\">Treasury bonds<\/a>, but in essence tie up that money by borrowing it back for short periods of time at low rates. This particular new twist in QE has been dubbed \u201csterilized\u201d quantitative easing and it would use reverse-repurchase agreements to keep the money from flowing to bank reserves.<\/p>\n<p>QE will be delivered via purchases of mortgage backed securities (MBS) and Treasuries, with a bias for the former, and will be sterilized in order to appease inflation hawks and critics, the Nomura Group has stated.<\/p>\n<p>Ben Bernanke has hinted around that more easing is around the corner if needed. Remember, the Fed\u2019s outlook on the recovery is a little less rosy than everyone else\u2019s.<\/p>\n<p>With housing prices still looking for a bottom, meager job growth, record-high oil prices, and the probable resurgence of the European sovereign debt crisis in the near future, Bernanke must deliver an \u201cinsurance ease\u201d to make sure the economy maintains its \u201cescape velocity,\u201d Nomura\u2019s analysts argue. In other words, the Fed needs to \u201cpump the economy to a high enough level to weather the [\u2026] storms that sill lie ahead for the nation.\u201d<\/p>\n<h2><strong>When We Should Expect QE 2.0<\/strong><\/h2>\n<p>Along with Nomura, Goldman Sachs\u2019 Jan Hatzius believes the Fed will deliver additional quantitative easing over the next three to six months.<\/p>\n<p>The Fed has been meddling in the <a title=\"The Global Bond Market Is About To Be Shaken Up\u2026\" href=\"http:\/\/www.investmentu.com\/2012\/January\/global-bond-market.html\">bond markets<\/a> consistently over the past four years, and would be scared of what would happen if they did an immediate full-scale evacuation from them.<\/p>\n<p>The Fed\u2019s latest venture called Operation Twist \u2013 where they sold short-term assets and bought longer-termed securities \u2013 ends this June.<\/p>\n<p>Sterilization, which will occur via a small extension of the Twist, term deposits and reverse repos, will \u201ckeep the hawks at bay because a slight rise in front-end rates should support the dollar and reduce oil inflation,\u201d explained the analysts.<\/p>\n<p>Under current circumstances, where growth is picking up but the recovery remains fragile, the Fed will prefer \u201ca more nuanced and targeted sterilized-easing approach, which has a lower impact on commodity prices and helps appease inflation hawks in the FOMC,\u201d concluded Nomura\u2019s analysts.<\/p>\n<p><a title=\"QE3 to Open Up New Investment Opportunities\" href=\"http:\/\/www.investmentu.com\/2012\/February\/qe3-investment-opportunities.html\">QE3<\/a>, then, is around the corner.<\/p>\n<p>Good Investing,<\/p>\n<p>Jason Jenkins<\/p>\n<div>\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=aaxkTSoKOKQ:zHVkFn2Lc-8:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=aaxkTSoKOKQ:zHVkFn2Lc-8:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=aaxkTSoKOKQ:zHVkFn2Lc-8:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=aaxkTSoKOKQ:zHVkFn2Lc-8:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=qj6IDK7rITs\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=aaxkTSoKOKQ:zHVkFn2Lc-8:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=aaxkTSoKOKQ:zHVkFn2Lc-8:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=aaxkTSoKOKQ:zHVkFn2Lc-8:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=aaxkTSoKOKQ:zHVkFn2Lc-8:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/InvestmentU\/~4\/aaxkTSoKOKQ\" height=\"1\" width=\"1\" \/><\/p>\n<p>Article by <a href=\"http:\/\/www.investmentu.com\/\" target=\"_blank\">Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Fed is looking into a new type of quantitative easing that will try to jump-start the economy without jumpstarting inflation. But will it work? It was November 2010 when the Fed launched its last quantitative easing program, which we lovingly nicknamed QE2. It fell on mixed reviews \u2013 mainly dependent upon how you like &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/fx\/2012\/03\/23\/sterilized-quantitative-easing-get-ready-for-qe2-1\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Sterilized Quantitative Easing: Get Ready for QE2.1&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-28494","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28494","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=28494"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28494\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=28494"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=28494"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=28494"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}