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Thursday, Sep. 20, 2012

EDITORIAL

U.S. Fed keeps hoping

The U.S. Federal Reserve on Sept. 13 announced a third round of quantitative easing to stimulate the national economy. The previous round of easing had lasted from November 2010 to June 2011.

Four years have passed since the failure of Lehman Brothers jolted the world economy. U.S. economic recovery remains slow. Even with the Fed's new action, there is the view that it will not have a dramatic effect. The U.S. economy stands at the crossroads of paths that may or may not lead to steady economic recovery.

On Sept. 14, the Fed started purchasing $40 billion per month in mortgage bonds in addition to $45 billion in Treasury bonds. The purchases will continue until employment prospects show significant improvement. This is the first time the Fed will continue quantitative easing without setting an end date.

The Fed hopes to improve the job market at an early date through expanded economic activity, helped by shoring up the housing market and by expanding the purchase of bonds, which is expected to lead to lower long-term interest rates. Fed Chairman Ben Bernanke said he will not set a job market-related numerical figure for ending the latest round of quantitative easing.

Earlier the Fed had said that its ultralow interest rate policy would at least continue to the end of 2014. It now says the policy will continue at least to the middle of 2015.

With less than two months before the U.S. presidential election, there is the view that the Fed's decision this time is a political move to help President Barack Obama. The political confrontation between the Republicans and the Democrats should not hamper efforts to improve the U.S. economy.

In his speech in August, Mr. Bernanke stressed that U.S. economic conditions are far from satisfactory and pointed out that improvement in the job market is slow. It was during this speech that he apparently paved the way for the third round of quantitative easing.

The unemployment rate in the U.S. in August was 8.1 percent — worse than when Mr. Obama became U.S. president. It is said that an increasing number of people have left the job market after giving up on the job hunt. Optimism is not warranted. Toward yearend, a "fiscal cliff" will arrive, as large-scale income tax cuts end and the government is forced to make across-the-board budget cuts.

The U.S. Congressional Budget Office predicts negative economic growth for the first half of 2013. Depending on the economic conditions and the result of the presidential election, the Fed may face a difficult situation.



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