Quantitative easing
12
108
OPERATION TWIST ANNOUNCED
$600BN QE2 BEGINS
QE1 SCALED UP TO $1.25trn
$600BN QE1 BEGINS
10
106
8
104
6
102
Unemployment Rate GDP (2005=100)
4
100
2
98
0
96
Fig. 2 US unemployment rate and GDP (index number)
Source: Bureau of Labor Statistics, Bureau of Economic Analysis
After the first round of QE (QE1), the GDP rising unemployment rate slowed down. The manufac examines the confidence of US manufacturing industry, also hinted at the upturn of US economy. of the USA showed sign of turning better and the rate of turing purchase manager index (PMI), which
65
60
55
50
45
Manufacturing PMI
40
35
30
Aug-07
Aug-08
Aug
-09
Aug-10
Aug-11
Fig. 3 US manufacturing PMI Source: Institute for Supply Management
After it reached the trough in the last month of 2008 at only 33.3 which showed a strong contradiction (PMI above 50 shows an increase on the prior month, while below 50 signals a decrease), it then soared up and returned back to 50 after nine months. In order to strengthen the pace Fed announced another round of QE (known as QE2). The QE2 intends to purchase a further US$600 billion of long-term treasury securities. Another method used by the Fed which has the si of QE is called ‘Operation Twist’. Th the same amount of short-term Treasury bills into long interest rates and therefore boost the economy. 2012, but it was extended towards the end of this year with another switch of US$ 267 billion on top of e plan was introduced in September 2011, and it intended to swap -term ones in an effort to cut the long ‘Operation Twist’ was supposed to expire of recovery, the milar effect -term in June
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