Fed. After it already adopted a Zero Interest Rate Policy last December, the FOMC had no alternative this week but to reaffirm its commitment to keep the monetary floodgates wide open – at least as long as the traditional credit channels remain frozen and the recession continues unabated. It even stated its willingness to increasingly buy longer-term Treasuries to improve conditions in private credit markets (pages 3-4).

Supporting measures. The Fed balance sheet shows that the US has already done more Quantitative Easing within a few months than Japan in years. But the Japanese experience also shows that credit easing alone does not guarantee rapid recapitalization of banks or a revival of the credit multiplier. Obama’s promotion of a "bad bank" approach as well as his recent fiscal program is, therefore, essential.

ECB. In Frankfurt, however, US-style Quantitative Easing bypassing the banking system faces resistance. The ECB is pointing to problems with numerous independent national government bond markets and national responsibility for cleaning up bank balance sheets (pages 5-7).

Interest rate policy. For that reason, it is not expected to lower its refi rate below 1% by mid-year and will even take a breather next Thursday – even though the thrust of its March revision for the growth & inflation outlook is already obvious. Not least because of its hesitant stance, the EMU-wide recession should last longer and the subsequent recovery will be more modest than in the US.

Further topics:

  • Weekly Comment: No, we can’t (page 2)!

  • Germany I: Labor market in the wake of recession (page 8).

  • Germany II: Ifo – A glimpse of light at the end of the tunnel (page 11).

  • US: Real M2 no longer a leading indicator (page 13).

  • Data outlook: EU industrial production continues to plummet, BoE to ease further; US purchasing managers to stay skeptical (page 15).

  • Market outlook: USD remains firm; not much demand for bonds.