For 2012, the inflation rate will amount to –0.7%. For 2013, we expect inflation of –0.1% and for 2014, 0.4%. In the foreseeable future, therefore, there is no risk of inflation in Switzerland. The third quarter of 2012 saw weak growth and a decline in trading activity worldwide. Although growth in the US economy and some of the emerging economies picked up, a mild recession persisted in the euro area. In Switzerland, real GDP in the third quarter increased again following a temporary downturn. For the fourth quarter, however, we expect significant weakening in growth. Consequently, economic growth in Switzerland for the year 2012 is likely to remain unchanged at around 1.0%. For 2013, we expect growth of 1.0–1.5%. The downside risks for the Swiss economy remain considerable. Although the measures announced by the European Central Bank (ECB) have significantly reduced the probability of extreme developments in the monetary union, there is still substantial uncertainty in connection with the management of the debt crisis in the euro area. It also remains to be seen how far the upcoming budget consolidation in the US will hamper growth. This question is weighing on the sentiment in the financial markets and the real economy. Moreover, momentum in the Swiss residential mortgage and real estate markets remains strong, and has led to a further increase in risks for financial stability. Global economic outlook I would now like to outline the outlook for the global economy and Switzerland in more detail.
The Fed’s changed operating framework In recent years, like many other central banks around the world in the face of the Great Recession and the prolonged economic recovery that has followed, the Fed adopted unconventional measures to provide monetary policy accommodation in pursuit of its macroeconomic policy objectives. This is reflected in changes in the Fed’s operating framework and the FOMC’s operating objective for OMOs. For many decades prior to the crisis, the operating objective for OMOs was expressed as a target for the federal funds rate – an overnight, unsecured rate in the market for reserve balances. The target rate was achieved through permanent and temporary OMOs that sought to adjust the supply of reserve balances in the banking system to a level that was expected to equal the estimated level of demand for reserve balances at the FOMC’s target rate. The Desk’s permanent additions to the supply of reserve balances were designed to fall somewhat short of the total demand, creating a “structural deficiency” in the supply of reserves. The Desk then conducted daily fine-tuning operations to temporarily add reserve balances to get to the desired level. These daily operations represented a marginal adjustment to the aggregate supply of reserves, largely in response to the exogenous impact of transitory changes in other Fed liabilities such as currency in circulation and the level of the U.S. Treasury’s account balance at the Fed.