The Fed has pulled the trigger again and announced that it will purchase an additional $45 billion in treasury securities on top of the $40 billion a month in mortgage backed securities. The following is from the Bloomberg article.
The central bank said it will buy $45 billion a month of Treasury securities
starting in January, in addition to $40 billion a month of
mortgage-debt purchases. Asset buying will continue “if the outlook for
the labor market does not improve substantially,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. It said interest rates will stay low “at least as long” as the unemployment rate remains above 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent.
My question is why. What does Bernanke et. al. see that the market does not see? The below chart shows the annualized 13-week change in M2 money supply.
In my mind, the growth in M2 suggests that economy is expanding and has been since the summer. If the economy is expanding, why the need for stimulus? Are the bond buying programs an insurance policy against another slide into recessionary territory or can we take Bernanke's comments at face value that the bond buying program is an attempt to increase employment levels? I don't know the answer, but I have never run across any research stating that monetary policy directly influences hiring levels. If monetary policy did, we not have Zimbabwe and Weimer German enjoyed 100% employment?
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