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Old 03-11-2011, 11:27 AM   #8
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Lightbulb "Bernanke: US economy may need additional stimulus"(2011-11-03)

Federal Reserve Chairman Ben Bernanke claimed yesterday that additional monetary stimulus may be needed to reduce unemployment as US economic outlook seems to be rather pessimistic. Among the options of such stimulus Bernanke named the third round of quantitative easing, extending the period of record-low borrowing costs or estimating the conditions necessary for the rate hike.

The Chairman admits that the central bank has overestimated the pace of US economic recovery and expects American economic growth to be “frustratingly slow”, while FOMC statement states that even after relatively good figures in the third quarter there are “significant downside risks”. According to Bernanke, these risks include the effects of European fiscal and banking problems.

The Fed’s GDP growth projections for 2012 were lowered from 3.3-3.7% (June’s estimate) to 2.5-2.9%. The projected unemployment rate in the fourth quarter of the next year was raised from the previous forecast of 7.8-8.2% to 8.5-8.7%.

The Operation Twist or the lengthening of the Fed’s bond portfolio maturity is left in place. US monetary authorities also confirmed the plan to hold the Federal funds rate between 0% and 0.25% at least until the middle of 2013.

It’s clear now that the Fed’s policy has become more accommodative and the central bank is ready for aggressive actions.

Despite the increased possibility of QE3 that should have weakened US dollar the greenback strengthened against euro. Analysts at UBS think that this may be explained by the fact that some traders expected the Fed to take even more loose approach. In addition, one should remember that the pair EUR/USD is also weakened by the ongoing crisis in the euro area.

Chart. Daily EUR/USD

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