Federal Reserve to the rescue? QE3 likely on the way
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - F.A. Hayek
After another poor jobs report, it seems that the Federal Reserve may launch a third round of quantitative easing, perhaps as early as this week, in hopes that it will bring a boost to the economy:
“QE3 is a done deal,” says Dan Greenhaus, chief global strategist at BTIG. “After today’s report, this debate is moot.”
Economists from Goldman Sachs share similar sentiment. They expect the Fed to launch a new bond-buying program next week, rather than in December or early 2013 as previously predicted.
A consensus is building in the bond market that a third bond-buying program, known as quantitative easing measures, will be a combination of longer-dated Treasury bonds and mortgage-backed securities, which would boost the value of
the targeted assets.
Goldman’s Jan Hatzius says QE3 will likely consist of an open-ended asset purchase program of around $50 billion per month. He doesn’t anticipate an end date given in advance. Instead it would likely be formulated based on the pace of the economic recovery.
Michelle Meyer, senior U.S. economist at Bank of America BAC. Merrill Lynch, is also in the camp that expects more Fed easing.
“The Fed will not stand idle in the face of subpar growth,” she says. “We expect additional balance sheet expansion before year-end, with a growing probability of an open-ended QE program tied to healing in the economy.”
While Wall Street desparately wants another round of quantitative easing, which is a reason that stocks didn’t tank on Friday after the jobs report, its positive effects are questionable to say the least and past rounds haven’t really had much of an effect on our economy.
If you’re lost on the concept, here’s a quick and easy to understand tutorial on quantitative easing, which is essentially debt monetization, from back in 2010: