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News Link • Natural Disasters

How Will the Fed React to Sandy?

With the Fed Funds target rate at zero, this could mean larger quantitative easing asset purchases or a focus on buying different financial assets by the Fed.

One trader even described what he thinks the Fed will do as “QE Sandy.”

If history and economic theory are guides to Fed policy, however, those counting on further accommodation may be in for a shock. It’s very possible—even likely—that Sandy will mean Fed policy might be tighter than it might have otherwise been. And that’s because Sandy’s side-effects might well accomplish the very things that Ben Bernanke has been hoping that his quantitative easing policy would.

The reason why some of the guys in expensive shoes who are telecommuting this week into Wall Street investment banks might expect further easing is obvious. The economy has experienced a real shock, losses will be in the as-yet-untold scores of billions. Federal and local governments will accelerate spending to provide relief and reconstruction. Economic activity in the Northeast has been severely disrupted. The economy obviously needs an injection of money.


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