US Federal Reserve debates how to rescue US economy (+ analysis); China commits to improve product safety; new Middle East deal would offer Israel generous incentives in return for settlement freeze; Obama deports 70% more illegal aliens than Bush; and more

Top of the Agenda: Fed Nears New Monetary Easing Round

The US Federal Reserve is close to embarking on another controversial round of monetary easing (WSJ) next week, amid fears of deflation and a weakening economy. The hope is to spur more investment and spending to bolster the recovery. But the efficacy of the policy--which aims to drive up the prices of long-term bonds in order to push down long-term interest rates--is being hotly debated among economists and Fed officials. Some Fed officials are pushing for an aggressive stimulus (Reuters), while others are skeptical of the idea altogether. The market expectation is for the Fed to initially commit to buying at least $500 billion in Treasury debt over five months. Markets could interpret the announcement as an open-ended commitment by the Fed to boost the recovery, driving up US stocks and government bonds and pushing down the US dollar. Some Fed officials are concerned (FT) about the difficulty of eventually selling the assets they buy, the risk of distorting the Treasury market, and the political implications of moving into fiscal policy.

Analysis:

In a recent report, Goldman Sachs economists Jan Hatzius and Sven Jari Stehn estimate the Fed may need to buy $4 trillion worth of assets like Treasury securities to get the economy rolling again. They say the Fed's policy is not loose enough.

In the Financial Times, Frederic Mishkin says the Fed needs to adopt a specific inflation target to anchor long-run inflation expectations and decrease the threat of deflation.

This CFR Analysis Brief examines the debate about monetary, currency, and trade policies of G20 countries, and their effect on the global economic recovery.

 

PACIFIC RIM: Rare Earths Rush Could Cause Bubble

China's increasing reluctance to supply the rest of the world with rare earths (Reuters) has sparked a gold rush-like frenzy to find new producers of the elements, but the global push for alternative supplies could fuel a commodities bubble.

China: Urged by US and European officials, China's consumer-safety agency plans to tighten product-safety regulations (WSJ) in an effort to reduce defective and dangerous exports and to ease trade tensions between China and the United States.

On CFR's Asia Unbound blog, Elizabeth Economy looks at China's rare earths policy and how other countries are expected to respond to decreased supply of the material.

 

ELSEWHERE:

- US Shifts on Middle East Deal
- NATO Fails to Stop Pakistan Bomb Flow
- US Deports Record Illegal Aliens in 2010

 

This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org