The Federal Reserve’s effort to reduce borrowing costs with an unconventional policy tool may also be highlighting limits to its power to fix what ails the U.S. economy.
Investors sought safer assets for a second day after the Fed announced it would shift $400 billion of its Treasury securities holdings into longer-term debt. Treasury 30-year bonds rallied, sending yields to the lowest level in almost three years, while the Dow Jones Industrial Average suffered its biggest two-day loss since December 2008.
Chairman Ben S. Bernanke and his policy-making colleagues yesterday cited “significant downside risks” to the outlook and responded with a program that economists say will provide at most a small boost to the recovery. The Fed should instead put more pressure on fiscal authorities to revive growth and outline a clear policy strategy, including setting a target for inflation, said Greg Hess, a former Fed researcher.
“The Fed needs to be answering questions, or providing confidence out there that answers questions, not just creating new ones,” said Hess, a professor and faculty dean at Claremont McKenna College in Claremont, California. “That’s why I think the response is negative and that’s why you’re seeing volatility rise.”
Yields on 30-year Treasuries declined to 2.8 percent at 4:22 p.m. in New York from 3.2 percent on Sept. 20. Stocks tumbled, with the Standard & Poor’s 500 index falling 3.2 percent in New York to 1,129.56, following a 2.9 percent drop yesterday. The Dow lost 3.5 percent to 10,733.83.
Strengthen Economy
That contrasts with the reaction to the second round of quantitative easing, when the S&P 500 rose 24 percent from the day Bernanke first signaled the policy in August 2010 to its conclusion in June. The rise in equities helped strengthen the economy, said Jerry Webman, chief economist at OppenheimerFunds Inc. in New York with $177 billion in assets under management.
“It would be helpful if someone would lay out exactly the economic mechanism that gets us from yet lower interest rates to actual economic activity,” Webman said. “Tell us why this is supposed to work because we’re missing something here. The market is obviously missing something here.”
__________
Black Noir online laser eye surgery
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
