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US Fed discusses easing options on fledgling economy

09-21-2011 14:37 BJT

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In United States, Fed officials are meeting to discuss easing options on how to revive a weakening recovery. The political climate in Washington for further stimulus and aggressive Fed action is uncertain but with America at risk of a new recession, the Fed is intent on taking the necessary steps to lift growth. Michael Wang has more.

The Federal Reserve's Open Market Committee opened a two day meeting Tuesday that is expected to end with a decision to once again stock up on long term treasuries in a bid to boost a fading U.S. economic recovery.

It's been 3 years since the financial crisis, but unemployment in the U.S. is still above 9 percent. With benchmark interest rates near zero and after two rounds of quantitative easing, the Fed is left with a limited arsenal in battling a weak economy.

A police officer guards the Federal Reserve building on September 10 in Washington,
DC.

Analysts expect the Fed to re-balance its portfolio with longer term bonds. Buying long term bonds could push down the yield curve, driving long term interest rates down.

This will make getting a loan easier as well as pushing investors out of the safe haven of treasuries and back into equities and corporate bonds.

The difference between yields on 2-year and 10-year treasuries narrowed by almost a full percentage point since the Fed's last round of quantitative easing. But some of that narrowing could be due to investors fleeing to safety from the debt turmoil in Europe.

Another move economists expect could be a cut on the rate the Fed pays to banks on excess reserves, making it more attractive for banks to lend rather than parking it at the central bank.

All in all, this round of easing is expected to be modest. Appetite for aggressive bond purchases is weak not only in Washington, but also amongst certain regional Federal Reserve heads as well.

Federal Reserve Board Chairman Ben Bernanke delivers remarks at the Federal Reserve
on September 15, 2011 in Washington, DC. Bernanke made brief opening remarks for a
conference on "Regulation of Systemic Risk".

Editor:Li Wanran |Source: CNTV.CN

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