X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Milton Ezrati of Lord AbbettThe broad scope and open-ended nature of the Federal Reserve’s third round of quantitative easing (QE3) raises questions about exactly what Fed Chairman Ben Bernanke has in mind. Some insight, remarkably, emerges from a speech he gave in November 2002, when he was simply a Fed board member, to the National Economists Club in Washington. Taking his cue from fears at the time about a Japanese-style deflation, Bernanke laid out a path for monetary stimulus in an extreme situation, outlining non-traditional policy tools that have since become common. The speech also took comfort in the relative strengths of the U.S. economy compared with Japan’s. Perhaps the dissipation of those advantages contributed to Bernanke’s decision to pursue QE3 now.

The Fed chairman’s 10-year-old talk offers a remarkable forecasting device. It explained how, in an extreme situation, traditional monetary policy tools, even bringing short-term interest rates down to zero, might not produce enough stimulus, and it listed the “non-traditional” policies the Fed might employ: 1) purchasing longer-dated Treasury, agency, and mortgage-backed securities; 2) announcing an intention to keep short rates low for an extended period; and 3) injecting liquidity into financial markets by accepting corporate bonds, bank loans, commercial paper and mortgages, among other securities, as collateral for direct lending to banks. All these tools made appearances during the 2008-09 financial crisis and have lingered in its aftermath. A fourth technique Bernanke mentioned in 2002 involved purchasing the debt of foreign governments. The Fed has yet to do so, but it might if there is any further deterioration in Europe.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.