Tags: Barclays | Payroll | Tax | QE3

Barclays' Maki: Extend Payroll Tax Cuts or Expect QE3

Tuesday, 29 Nov 2011 08:20 AM

If the government does not extend payroll tax cuts due to expire in 2012 then the economy will suffer, leaving the Federal Reserve to see no choice but to roll out a third round of quantitative easing (QE3), says Barclays Capital chief U.S. economist Dean Maki.

The Fed, under Chairman Ben Bernanke, has already launched two rounds of quantitative easing, known widely as QE1 and QE2.

QE1 saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage securities, while QE2 saw the U.S. Central Bank snap up $600 billion in Treasury bonds from financial institutions.
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Supporters say the move aims to prevent inflation from reverting to a more vicious cycle of deflation and also aims to spur stock-market gains and ultimately, hiring.

bernnake200ap3.jpg
Ben Bernanke
(Associated Press photo)
Critics say the plan stokes inflationary pressures and weakens the dollar while doing really nothing to lower unemployment rates.

But according to Maki, a third round is coming if the government fails to renew payroll tax cuts in time, which would serve as the equivalent of a $110 billion tax increase next year that would result in lower growth rates.

Maki notes that there's a group within the policy-setting Federal Open Market Committee that finds current unemployment and growth trends unacceptable and are “itching to do more,” the Wall Street Journal reports.

Should politicians renew the payroll tax cut, only a severe meltdown in Europe would trigger QE3.

Market talk is growing that QE3 will involve the Federal Reserve returning to buy mortgage securities this time, especially considering that inflation rates remain within comfort zones for expansionary monetary policy.

"There is a significant chance that QE3 will be deployed, especially in the form of MBS purchases, if inflation expectations fall enough," Srini Ramaswamy, a debt strategists at JPMorgan in New York, writes in a report, according to Bloomberg.



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If the government does not extend payroll tax cuts due to expire in 2012 then the economy will suffer, leaving the Federal Reserve to see no choice but to roll out a third round of quantitative easing (QE3),says Barclays Capital chief U.S. economist Dean Maki. The Fed,...
Barclays,Payroll,Tax,QE3
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2011-20-29
Tuesday, 29 Nov 2011 08:20 AM
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