Quantitative Easing

Westpac / Melbourne Institute Index January reading came out yesterday at -3.1% for the year. This gauge suggests the likely pace of economic growth three to nine months into the future and is down from the December reading of -2.8%. It's the lowest level since August 1990 and it's taken half the time it took 18 years ago to get there. This deeply negative level is consistent with contracting economic activity.

QUANTITATIVE EASING. This is the term given to actions central banks are left with once they run out of room to move on monetary policy. With interest rates at 0 - .25% in the US this is the step Ben Bernanke is now taking. Last night he committed USD 1.15 trillion to the fight to revive the economy. As well as buying mortgage debt he is diving in, over the next 6-months, to long term Treasury securities with USD 300 bln in an effort to lower long term rates. Most hosing loans in the US are based off the 30 year bond rate and fixed rate mortgages are above 5%. The announcement had an immediate effect with a sharp rally in long bonds.

Our futures are a little stronger as a result. A 90 day bank bill from mid-Dec is trading at 2.60%