Tags: fed | qe3 | stimulus | easing

Survey: Most Investment Experts Expect Fed to Launch QE3

By    |   Wednesday, 11 Jul 2012 11:49 AM

Most Wall Street investment experts believe that more stimulus from the Federal Reserve is coming, according to a new CNNMoney survey.

Of the 30 experts polled, two-thirds said the Fed’s extension of its Operation Twist policy was warranted, and the same percentage believed the Fed will reconsider a third round of quantitative easing (QE3).

At the beginning of the year, experts wanted the Fed to start QE3 as a “last resort,” as the job market was improving and the manufacturing sector was strengthening, CNNMoney reported.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

However, non-farm payrolls for June increased only 80,000, marking the third straight month that employment increased by fewer than 100,000 positions, and the unemployment rate stayed at 8.2 percent.

In addition, the Institute for Supply Management’s manufacturing index fell to 49.7 in June from 53.5 in May, signaling contraction, and measures of orders, production and export demand fell to three-year lows, according to Bloomberg.

“Extending Operation Twist was a less overt move for the Fed to keep interest rates low, but I think economic conditions are moving in a direction that it could become necessary for the Fed to pump money into the system in a more obvious way through QE3,” Tom Schrader, managing director at Stifel Nicolaus & Co. Inc., told CNNMoney.

Schrader believes the Fed could announce QE3 after its next two-day meeting, which is scheduled for July 31 and Aug. 1. Otherwise, the Fed would probably wait until its final meeting of the year in December to keep enough distance from the November elections.

Some experts, however, want the Fed to back down and say that the market needs more confidence from legislators regarding the looming "fiscal cliff"
of major tax hikes and spending cuts planned for early 2013.

“The markets are completely dependent on the zero interest rate policy and the continued liquidity injections,” said Dan Morris, chief investment officer of Morris Capital Advisors.

“I believe that our economy and the markets will not be able to recover properly as long as they are dependent on the Fed's life support and as long as the Fed continues to find ways to artificially extend these policies.”

Still, the Fed’s intervention has become psychologically important for investors, according to Adrian Day, president of Adrian Day Asset Management.

“The market is expecting further Fed action, and now it needs it for a sustained rally,” he noted.

San Francisco Federal Reserve Bank President John Williams said this week that the Fed is prepared to do more to bring down unemployment and to steer inflation back up to the central bank's target of 2 percent, Reuters reported.

Williams also admitted that the extension of Operation Twist would only have a “modest impact on the economy,” according to CNNMoney.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Wednesday, 11 Jul 2012 11:49 AM
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