Central banks unleash stimulus as BOJ joins easing odyssey

More Pressure

“The ECB is desperate to catch up,” said Lex Hoogduin, professor of monetary economics and financial institution at the University of Amsterdam and a former adviser to Wim Duisenberg, the first president of the ECB. “The Europeans have a particular issue, which is that Germany won’t permit the ECB to go down the inflation road, but all the other countries want it desperately.”

In the U.K., Carney’s appointment as the BOE’s next governor starting in July has already raised the possibility of more easing after 375 billion pounds ($571 billion) of government bond purchases. The government has loosened the central bank’s mandate to give it flexibility in reaching its inflation target, and current Governor Mervyn King is leading a faction on the Monetary Policy Committee for more stimulus.

As Japan and the U.K. step up QE programs, Fed officials are discussing the conditions that would prompt them to throttle down.

Regaining Jobs

The Fed’s balance sheet has reached a record $3.2 trillion, more than triple its size in 2007, as the central bank buys $85 billion a month of Treasuries and mortgage-backed securities. The Fed has said it will continue the purchases until the jobs outlook has “improved substantially.”

Since the Fed began its third round of large-scale asset purchases in September, the nation’s unemployment rate has dropped to 7.6% from 8.1%.

A Labor Department report today showed employers added 88,000 workers in March, less than half the median estimate for a gain of 190,000 jobs in a Bloomberg survey of 87 economists. While that was the weakest advance in nine months, a slump in the size of the labor force pushed the unemployment rate down to the lowest level in four years.

Bernanke on March 20 said further gains are needed for the central bank to consider reducing its record monetary easing. Still, he added that the Fed may adjust the rate of monthly purchases based on the outlook for the labor market.

The Fed’s Open Market Committee that day repeated that it will hold the main interest rate near zero as long as unemployment remains above 6.5% and inflation is projected not to exceed 2.5%.

Earlier this week, St. Louis Fed President James Bullard characterized policy as “full steam ahead.”

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