Tags: Chances | Fed | Easing

Analysts: Chances of More Fed Easing Are Rising

Monday, 12 Dec 2011 03:12 PM

Market talk is on the rise that the Federal Reserve may roll out a third round of quantitative easing — asset purchase from banks — despite improving economic indicators.

Analysts say the move may come in response to Federal Reserve perceptions that firming unemployment, housing and consumer confidence rates are temporary and that fresh easing will be needed to avoid return to recession.

Citigroup analyst Inger M. Daniels, for example, predicts the Fed to buy $700 billion worth of mortgage-backed securities, and possibly another $300 billion in Treasurys, CNBC reports.

"We believe this level of purchases would align with the Fed’s stated goals of aiding borrowers while not allowing for egregious Fed concentrated ownership of the mortgage market," Daniels writes in a research note.

Quantitative easing aims to keep interest rates low and fuel economic growth, although critics say the policies threaten to push up inflationary pressure and point out two previous rounds, known widely as QE1 and QE2, didn't fuel serious growth or lower unemployment rates.

Still the chorus of QE3 forecasts is growing louder.

"We think additional easing in the form of QE3 is possible by the second half of next year, when we expect the economy to have weakened materially from fiscal policy-induced uncertainty," Michael S. Hanson, U.S. economist at Bank of America Merrill Lynch writes in a recent note, CNBC adds.

Some, however, say the Federal Reserve will hold off until economic indicators really sour.

"Recent economic data takes away some of the urgency for the need to engage in a new round of quantitative easing," says Michael Feroli, a former Fed economist and now chief U.S. economist at JPMorgan Chase & Co. in New York, according to Bloomberg.

The Federal Open Market Committee "can say, 'Let's wait and see if this is going to build on itself.'"

© 2017 Thomson/Reuters. All rights reserved.

   
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Market talk is on the rise that the Federal Reserve may roll out a third round of quantitative easing asset purchase from banks despite improving economic indicators. Analysts say the move may come in response to Federal Reserve perceptions that firming unemployment,...
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2011-12-12
Monday, 12 Dec 2011 03:12 PM
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