Tags: Goldman | fed | easing | Elections

Goldman Sachs: Fed Will Roll Out More Stimulus After Elections

Wednesday, 18 July 2012 10:27 AM

The Federal Reserve will likely roll out a third round of bond buybacks from banks, a stimulus tool known as quantitative easing, most likely after elections, Goldman Sachs analysts said in a report.

The Fed will hold monetary policy meetings in August and in September, and may tweak policy then, but expect a big announcement in December or in early 2013, likely involving a third round of quantitative easing.

"While we think that a modest easing step is a strong possibility at the August or September meeting, we suspect that a large move is more likely to come after the election or in early 2013, barring rapid further deterioration in the already-cautious near term Fed economic outlook,” Goldman Sachs economist Andrew Tilton said in a report, according to CNBC.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

To spur recovery, the Fed has twice intervened in the economy with two rounds of quantitative easing, buying $2.3 trillion in Treasury bonds and mortgage-backed securities held by banks.

The tool aims to pump liquidity into the economy to push interest rates down and encourage investing and job demand.

While many have predicted the Fed to step in before elections, expect less intense policy responses such as extending the forecast as to how long benchmark lending rates might stay low.

The big guns won't roll out until later.

“The bottom line: our base-case expectation is for an extension of the rate guidance by September, with a larger easing action (asset purchases or a "credit easing" program) in December or early 2013,” Tilton said in the report.

Mere mention of quantitative easing among senior Fed officials can move markets since the tool weakens the dollar and sends stocks prices and commodities like gold rising.

Fed officials say they'll intervene should the labor market and price levels threaten to veer outside of comfort zones.

"If recent weak economic data persist and cause my outlook for economic growth and inflation to become weaker than I currently anticipate, additional policy actions could be warranted," Federal Reserve Bank of Cleveland President Sandra Pianalto said, according to a copy of a speech she delivered to the Economic Research Institute of Erie posted on the bank's site.

“My outlook is subject to considerable uncertainty, since any number of better or worse scenarios could actually materialize,” Pianalto added.

“There is no substitute for constantly assessing incoming information, updating forecasts, and evaluating the costs and benefits of our policy options.”

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Wednesday, 18 July 2012 10:27 AM
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