Caterpillar, the global industrial equipment behemoth, employs some pretty sophisticated economists, and its earnings announcement comes with some pretty extensive and granular economic analysis and forecasting.Here are their thoughts on the Federal Reserve’s past balance sheet expansion efforts (aka quantitative easing) and the prospects for future balance sheet expansion:
- The U.S. Federal Reserve’s balance sheet expansion in the first half of 2010 benefited the economy, but those gains seem to be slowing. Banks are expanding credit at a moderate rate, but money growth is slowing. We have not detected much benefit to economic growth from the central bank’s policy of lengthening the maturity of its securities.
- Eventually, we expect the U.S. Federal Reserve will resume expanding its balance sheet, but not soon enough to benefit growth in 2012. We believe modest recovery will continue in the United States, with economic growth slowing to slightly more than 2 per cent in 2012.
When the Fed expands its balance sheet, it’s buying bonds on the market in an effort to lower interest rates making it cheaper for consumers and businesses to borrow.
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