Central Banks Have Realized Their Worst Nightmares Are Approaching

Wednesday, April 23, 2014
By Paul Martin

by Phoenix Capital Research
ZeroHedge.com
04/23/2014

Central Bankers will never openly admit that they or their policies have failed. Moreover, they do not rush into sudden tightening (more on this in a moment). But one can begin to notice subtle changes in their language and actions that indicate they have noticed what’s happening in Japan (the failure of the BoJ’s “shock and awe” QE program to generate growth).

Nowhere is this more clear than at the US’s Federal Reserve or Fed. Indeed, starting in August 2013, various Fed officials began questioning the efficacy of QE.

First came the San Francisco Fed with a study revealing that QE generally doesn’t appear to generate economic growth:

Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small.

Moreover, the magnitude of LSAP effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.

The Rest…HERE

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