Republican leaders in Congress are worried about Ben S. Bernanke 's second round of quantitative easing

Republican leaders in Congress say they have "serious concerns" about Ben S. Bernanke 's second round of quantitative easing. The U.S. stock markets and credit do not share those reservations.

500 Standard & Poor's has risen 17 percent since the Federal Reserve chairman said in the first place on 27 August that the central bank could buy more securities to stimulate the economy. junk bonds rallied, with the extra yield that investors demand to own the securities instead of government debt reduction to 5.45 percentage points from 6.81 points yesterday, according to data from Bank of America Merrill Lynch index .

"It was a success," said Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York, Bernanke's policy of pumping money into the financial system, called Queen Elizabeth 2. "It has contributed to the concentration in the stock market" and "has been important to reduce substantially the risk of deflation."

Reports signal economic recovery is gaining strength. A larger than expected increase in retail sales in November asks Michael Feroli, chief U.S. economist JPMorgan Chase & Co. in New York, to raise its outlook for consumer spending in the fourth quarter. November industrial production also beat forecasts, and an indicator of consumer confidence rose to a maximum of six months in December.

The data, along with the prospect Congress approve a plan of 858 billion to extend the tax cuts of the Bush era, has led economists to raise their estimates for growth next year. The economy will expand 2.6 percent in 2011, according to the median forecast in a survey of 66 economists this month, against a forecast of 2.5 percent in November.

Confidence grows

"As people more confidence in the economy, the money is coming into the stock market," said Jeremy Siegel, finance professor at the University of Pennsylvania Wharton School in Philadelphia. "The most important work is the quantitative easing liquidity provision."

New York, chairman of the Fed, said William Dudley on October 1 that the asset purchases would reduce borrowing costs and support the value of homes and stocks, leaving consumers with more money to spend and reducing the cost of capital for companies.

The extra yield investors demand to own corporate bonds with investment grade public debt rather than dropped to 1.7 percentage points yesterday from 1.91 percentage points on August 27, Bank of America Merrill Lynch index data show .

"The markets have generally moved in a direction conducive to growth," said Dean Maki, chief U.S. economist Barclays Capital in New York.

Contrast to the summer

The latest economic data are in contrast to a drumbeat of negative economic reports last summer, including the decline in home sales and payroll, which led economists like Martin Feldstein of Harvard University to warn that the risks of a recession were renewed on the rise.

On August 27, Bernanke said the Fed "will do everything possible" to support recovery and said he was ready to begin a second round of purchases of securities, in addition to the $ 1,700,000,000,000 bought it through last March to shoot of the nation's worst recession since the Great Depression.

November 3 Federal Reserve announced it will buy 600 billion U.S. dollars of treasury bonds in June came a day after congressional elections gave the Republicans a majority of seats in the House of Representatives.

A dangerous experiment "

Sarah Palin, vice presidential candidate in 2008 who says he is considering running for president in 2012, wrote for the Wall Street Journal last month, saying "it is time to 'refudiate" the idea that this dangerous experiment in print 600 billion dollars in the air, with nothing to back it up, magically solve economic problems. "

Rep. John Boehner, of Ohio, nominated to be chairman of the House, and three other Republican leaders sent a letter to Bernanke, November 17, expressing "our deep concern over the recent announcement that the Federal Reserve to buy U.S. Treasury bonds . UU. extra. "

"This bill introduces significant uncertainty about the future strength of the dollar and could result in both hard-to-control, long-term inflation and potentially generating artificial asset bubbles that could cause disruptions in the economic field," they wrote.

Since then, the dollar has gained about 1.8 percent against the currencies of six major trading partners, as measured by IntercontinentalExchange Inc. 's index of the dollar as of 1:19 pm in New York. The dollar has fallen 2.9 percent since Aug. 27.

The cost of living increased 0.1 percent in November, less than expected, which indicates an increase in commodity prices is not filtered through into other goods and services, according to a December 15 Department Working.

Seen as favorable

"We expect a rapid major change in inflation in the short term," said Maki, who was the No. 2 overall economic forecaster U.S. in the two-year period ended September 30. "What we're waiting for is a very gradual trend can be seen by the Federal Reserve so favorable."

Policy makers are concerned that too low inflation will drive up borrowing costs and increase the risk of deflation, or declining prices increasing debilitating debt and reduce wages and benefits.

Fed policies have pushed inflation expectations rise. The rate of return of 10-year Treasury Inflation Protected Securities, the performance difference between debt and inflation indexed Treasuries of similar maturity, has risen to 2.3 percentage points from 1.63 percentage points August 27. The index is a measure of the outlook for consumer prices during the life of the securities.

Risk reduction

"Because the Fed is acting, I'd say the risk is very low" deflation, "Bernanke said in an interview with CBS Corp. s'" 60 Minutes "program broadcast on December 5. "But if the Fed did not act, then taking into account how inflation has fallen sharply since the beginning of the recession, I think it would be a more serious concern."

Not all indicators track to Bernanke. November payrolls increased by 39,000 jobs, less than the most pessimistic forecast in a survey of economists, and the unemployment rate rose to 9.8 percent from 9.6 percent.

The pace of economic growth is "insufficient to reduce unemployment," the Federal Open Market Committee this week, as it said its plan to purchase bonds and renewed the promise of a "prolonged period" of low interest rates.

An increase in the yield on the Treasury has provided fodder for critics such as Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

'Resounding failure'

"Their efforts to achieve the stated purpose of pressing long-term yields lower has been a complete failure," Stanley said in a report of 14 December. The yield on the benchmark 10-year Treasuries has climbed to 3.36 percent from 2.64 percent on Aug. 27.

Kevin Hassett, director of economic policy studies at the American Enterprise Institute in Washington and former Fed economist, said the central bank can not claim sole credit for the manifestation of values, which he said was caused by "a lot of better economic data. "

Hassett, one of 23 scholars mainly Republican and former policy makers who signed a letter last month to Bernanke, saying that the arrest of the enlargement of monetary stimulus, and it will increase inflation, also asked if the stock gains will stimulate consumer spending through the so-called wealth effect.

While investments in consumer stocks have gained in value, their bonds are falling ", said Hassett.

Too early to judge

Former Fed Governor Lyle Gramley said it was "too early to make a final ruling" on the purchase of bonds of the Federal Reserve.

"I do not know how to analyze the effects of QE2 given the changes in the environment", including sovereign debt crises in Europe and prospects for an extension of tax cuts in the U.S., said Gramley, senior adviser Potomac Research Group in Washington.

Others say the rise in bond yields is a positive sign that reflects the prospects for faster economic growth and rising inflation expectations.

asset purchases by the Fed are keeping yields lower than they would, Citigroup Inc. analysts led by Robert DiClemente said in a report of 10 December. At 3.36 percent, the yield on the benchmark 10-year Treasury is below its 10-year average of about 4.16 percent.

'Grave error'

"Looking only at the long-term rate is a serious error in the interpretation of this policy" because the quantitative easing works by increasing the liquidity of the University of Pennsylvania, said Siegel.

Siegel notes that the rise in commodity prices as another sign of increased confidence in the economy. Oil futures rose 17 percent from Aug. 27 to settle at $ 87.70 yesterday on the New York Mercantile Exchange.

"What the Fed is trying to revive the economy," said Ward McCarthy, chief economist at Jefferies & Co. in New York. "In so far has prevented deflation expectations and encouraged an increase in the stock market then has been a success."