How The Fed’s QE3 Decision at ‘April Meeting’ Effects Families & Investor’s

DETROIT – The stock market, economy and unemployment data showed signs of strength. U.S. joblessness has fallen to 8.3 percent, the lowest level in three years, according to the Labor Department.

Central bank policy makers upgraded the outlook for the U.S. economy at their March 13 meeting, a factor that lead to the Fed’s “decision” in not introducing QE3 at it’s last meeting. They reiterated their pledge to keep interest rates near zero until at least late 2014.

As Republican Presidential candidates discuss flip flopping, contraceptives, and who’s the better candidate. The end of tax breaks enacted by Republican President George W. Bush and $1 trillion of mandatory federal budget cuts are raising concern that declining unemployment will give way to slower economic growth that requires support from the central bank.

Policy makers under Chairman Ben S. Bernanke have purchased $2.3 trillion of Treasuries and mortgage debt in two rounds of so- called quantitative easing, known as QE1 and QE2, as they try to sustain the expansion.

Billionaire investor Guru Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the Federal Reserve will probably signal plans for QE3(debt purchases) in April.

The Fed is “likely to hint” at QE3 at its April 25 gathering, Gross wrote on Twitter.

Pimco’s $252 billion Total Return Fund reduced holdings of Treasuries last month for the first time since February 2011, when it cut its stake in the securities to zero. Gross lowered the proportion of U.S. government securities in the fund to 37 percent of assets from 38 percent in January, according to a report on the company’s website. He raised mortgages to 52 from 50 percent.

Introducing QE3

If the Fed introduces QE3. It will weaken the US dollar. Oil prices and the metal market’s will rise in the short-term, raising the price of gasoline this summer. Driving up short-term inflation as a percentage of GDP and potentially hurting investor’s and consumer’s short and long-term confidence.

Just like Central Banks, investor’s need to have the ability to plan a budget. For those investor’s willing to invest capital. There has to be stability in the market’s for investor’s too have long-term confidence in their ability to invest his/her capital.

Just like investor’s, families need to have the ability to plan a budget. For those families willing to invest disposable income too renovate homes, plan family vacations, college savings, groceries shopping and participate in school activities. There has to be stability in the US dollar for mother’s and father’s too invest their capital.

Not Introducing QE3

With oil above $100 a barrel since the middle of February, saying no to QE3 short-term, would give the Fed a better outlook and handle for short-term inflation and help investor’s and consumer confidence.

If the Fed does not introduce QE3. It will strengthen the US dollar, oil prices and the metal market’s will remain flat in the short-term. This will drive out the speculation in the market’s and short-term inflation as a percentage of GDP will come down. Considering the Gulf’s US$520bn trade surplus in 2011 was the biggest in the world and almost twice that of nearest competitor China, according to new research. The Fed will need to pull the momentum from the commodities and metal’s market’s in the short-term to balance the US trade deficit’s.

If the Fed does not introduce QE3. That will cause stabilility in the US dollar and have a positive effect on investor’s willing to invest capital.

By eliminating that invisible inflation tax. This will allow families too allocate more disposable income to family budget planning and actives.

Source: bloomberg.com

To contact the writer responsible for this interview: Adrian Mitchell at woodlawnPost@yahoo.com

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Posted by WoodlawnPost on Mar 26 2012. Filed under Banking, Investments, Rates & Bonds. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.