What is the subsequent trend of the US monetary policy?

 

June is approaching, the time when the Federal Reserve completes the $600 billion US Treasury bonds purchase programme. Thus, how will the Board of Governors of the Federal Reserve System and the Federal Open Market Committee evaluate the efficiency of this programme and its contribution to the main monetary policy goals to promote the maximum employment, stable prices and moderate long term interest rates? Similarly, what are their insights regarding the subsequent monetary trends?

Financial stability decision to increase money supply and keep low interest rates should have supported the global trading in the world dominating currency - dollar; however, excessive growth of the money supply creates hyperinflation and this is even harder task to manage on the global level.

So, let’s consider whether the inverted Federal Reserve’s decisions to increase interest rates and to convince international financial institutions to buy the US treasuries bonds are favorable scenario to mitigate inflation. Moreover, what should be the cost of such policy? The US long-term credit rating AAA may be downgraded as S&P lowered its outlook from stable to negative according to the estimated US ability to reduce government spending and manage limits - $14 trillion ceiling on borrowing. Additionally, the policies of emerging markets may also be disadvantageous as emerging countries most likely will keep high interest rates to avoid the domestic economy overheating. So, how much and quickly the US interest rates should be increased to make the US Treasury bonds attractive investment. Incidentally, how will the described price stability policy affect the economy growth?

 

By the way, could it be that international financial institutions will buy the US treasuries bonds regardless of their credibility and profitability in order to sustain financial stability. Is this scenario reliable? Maybe, but if it is not –what is the next?