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Part 2...

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    Part 2

    Fed’s Powell says planned bond buying isn’t emergency stimulus; investors are skeptical

    By Chris Matthews
    Published: Oct 9, 2019 12:47 p.m. ET

    The U.S. central bank will soon give details on a program of balance-sheet expansion.


    During a week dominated by often troubling news on the international trade front, equity investors were provided some relief Tuesday by a figure who has sparked more than one stock-market rally in recent months: Federal Reserve Chairman Jerome Powell.

    During a speech and question-and-answer session at conference for the National Association of Business Economists in Denver, Powell announced that the central bank would soon start expanding the size of its balance sheet, adding bank reserves to the financial system to avoid a recurrence of the unexpected strains seen in short term money markets last month.

    But Powell’s comments have sparked a debate among market watchers as to whether the move by the Fed is another form of stimulus, or “quantitative easing,” (QE) rather than the quotidian actions of a central bank attempting to keep the plumbing of the financial system operating smoothly.

    “I think what the Fed Chairman decides to call it is inconsequential,” Yousef Abbasi, global market strategist for U.S. institutional equities told MarketWatch. “From what’s been discussed, it’s exactly what was once called QE. They would be buying securities and increasing liquidity and that is easing. However you want to refer to it, ultimately it’s supportive of equities,” he said.

    Mike O’Rourke, chief market strategist at JonesTrading said in an interview that balance-sheet expansion may be different because it will involve the purchasing of short-term government debt rather than long-term debt, but that the effect is to enable private banks to maintain larger balance sheets and take on more risk. “This is very QE-like,” he said.
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