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More Economists Now Expect Additional Fed Easing

Wednesday, 22 Sep 2010 08:17 AM

The number leading Wall Street economists predicting more quantitative easing from the Federal Reserve edged up following the latest Fed meeting, a Reuters poll found on Tuesday.

Ten of the 16 primary dealers who responded to the poll said easing was likely, with seven dealers predicting an announcement could come at the end of the Federal Open Market Committee's next meeting on November 3.

The number of primary dealers predicting more easing rose from nine out of 15 dealers who either expected it or saw it as likely or a possibility in an earlier poll on September 3.

More dealers also saw the Fed holding interest rates steady through the end of 2011.

"The key is the committee has a lot of discomfort about the rate of growth in the economy today but we think it bought some time with the improvement in market conditions over the last couple of weeks," said Zach Pandl, U.S. economist at Nomura Securities in New York.

Nomura was among the seven that predicted the Fed would begin further easing in November. Cantor Fitzgerald and Bank of America said the new easing program would come later--in December and January, respectively.

The size of the program could total $1 trillion, three dealers said. Another four estimated its size at around $500 billion, while one dealer said it would likely total $100 billion per month.

In its latest statement on Tuesday, the FOMC seemed to set the scene for a second round of easing, adding more specific language to its comments on the importance of bringing core price inflation in line with the central bank's targets.

Tuesday's statement came on the heels of several months' worth of economic readings showing slowdowns in manufacturing growth along with barely perceptible increases in the prices paid by producers and consumers. The Fed began signaling it could do more to help the economy in speeches by Fed officials in August.

The Fed would begin any new easing campaign with a Treasury purchase program, and five dealers predicting more easing said the Fed was unlikely to move beyond Treasuries, while three said the central bank could expand its program to other asset classes such as mortgage-backed securities and agency debt later.

"The Fed has shown nothing but extreme willingness to help out the economy and they rarely shut the door on themselves," said Tom Porcelli, U.S. economist at RBC Capital Markets in New York.

"I don't see why they would shut the door on doing additional things beyond Treasuries. But they will start with Treasuries."

Expectations for the Fed's first interest rate hike moved to a slightly later date. Nine of the 16 respondents saw the Fed holding rates steady at 0-0.25 percent through the end of 2011. At the time of Reuters' poll of primary dealers on September 3, eight dealers predicted rates would be unchanged for all of 2011.

Of the 10 primary dealers who gave interest rate forecasts for the first half of 2012, four predicted the Fed would leave rates unchanged though that period. JPMorgan, and Cantor predicted a rate of 0.50 percent by the end of the second quarter, while Daiwa Securities called for 1.50 percent and RBS Securities called for 2.50 percent. RBC predicted a rate of 0.25 percent by the end of the second quarter of 2012.

© 2017 Thomson/Reuters. All rights reserved.

   
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The number leading Wall Street economists predicting more quantitative easing from the Federal Reserve edged up following the latest Fed meeting, a Reuters poll found on Tuesday. Ten of the 16 primary dealers who responded to the poll said easing was likely, with seven...
More,Economists,Expect,Additional,Fed,Easing
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2010-17-22
Wednesday, 22 Sep 2010 08:17 AM
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