Tags: Chandler End of QE2 Doesn’t Mean End of Government Intervention

Chandler: End of QE2 Doesn’t Mean End of Government Intervention

Wednesday, 01 Jun 2011 01:13 PM

The Federal Reserve’s $600 billion bond-buyback program designed to fuel economic growth, known widely as QE2, is due to end this month, but don’t count on the government to stop intervening in credit markets, experts say.

QE2, or quantitative easing, is designed to inject money into banks to incentivize more economic and stock-market activity.

bernanke200.jpg
Fed Chair Ben Bernanke
(Getty Images photo)
Corporate earnings have been soaring, and Fed officials have said the economy can stand on its own feet.

Some say, however, the government will still intervene in credit markets where it can to ensure a more orderly exit, a concept known as financial repression.

In other words, as markets rush to react to the Fed’s exit, the government will act contrarian to calm the waters.

“Financial repression refers to official actions that run counter to the market-based incentive structure,” says Marc Chandler, global head of currency strategy for Brown Brothers Harriman, according to CNBC.

“The ostensible goal is to support the government bond markets. Moral suasion, the cajoling of investors are soft forms of financial repression, where the government can impose such cooperation by fiat.”

While the Federal Reserve has officially ruled out a third round of quantitative easing, some market observers say a still weak economy may prompt just such policy, as evidenced by a weaker dollar.

“The pace of dollar weakening during the past week is noteworthy,” Greg Anderson, a senior currency strategist at Citigroup in New York, write in a research report, Bloomberg reports.

“It certainly supports the notion that foreign-exchange markets are beginning to price in QE3.”

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The Federal Reserve s $600 billion bond-buyback program designed to fuel economic growth, known widely as QE2, is due to end this month, but don t count on the government to stop intervening in credit markets, experts say. QE2, or quantitative easing, is designed to inject...
Chandler End of QE2 Doesn’t Mean End of Government Intervention
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