Tags: Pimco | fed | easing | qe3

Pimco’s Gross: Fed Will Roll Out QE3 This Month

Wednesday, 03 Aug 2011 08:20 AM

The Federal Reserve will roll out a third round of quantitative easing (QE3) this month in order to spur more economic growth, says Bill Gross, co-head of Pimco, the world's largest bond fund.

The Fed won't call it QE3 and will carefully word its language, but if monetary policy authorities say they're going to be targeting inflation in some manner, that means loose monetary policy remains.

QE2, which ended in June, involved a $600 billion purchase of government debt from banks as part of a plan to inject money into the financial system to pump up both stock prices and job demand, which met with mixed results.

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Bill Gross
(Pimco file photo)
"We have a divided Fed so it's going to be difficult to re-enact the same form of QE2," Gross tells CNBC.

"What they do have in place now...is a program for the language which speaks to an extended period of time, which ties language to an extended period of time."

If the Fed vows to keep its funds rate target at a maximum of 0.25 percent as long as inflation stays at 2.5 percent or less, then expect loose monetary policy to continue.

Many don't want that, saying easing hikes commodity prices and squeezes consumers.

"We have a negative opinion of QE2, and believe QE3 could very well turn out to be ineffective at best, and counter-productive at worst," says Stephen Jen, managing partner of London-based hedge fund SLJ Partners, according to Reuters.

"If we are right, QE will be self-defeating in that the more the Fed eases, the more commodity prices rise, which erodes the capacity of consumers to spend on non-energy products and services."

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The Federal Reserve will roll out a third round of quantitative easing (QE3) this month in order to spur more economic growth, says Bill Gross, co-head of Pimco, the world's largest bond fund. The Fed won't call it QE3 and will carefully word its language, but if monetary...
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2011-20-03
Wednesday, 03 Aug 2011 08:20 AM
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