Consensus: No QE3 This Week
Here’s a nice round-up of opinions from the analyst community on whether or not there will be QE3 this week. I’m really torn here. The Fed seems to be signalling that they’re more likely to act, but the recent data still isn’t totally consistent with more Fed action. Most importantly, core inflation is still above 2% and GDP, while weak, was better than expected last week. We all know it’s comMore via the WSJ:
–J.P. MORGAN: There’s a less-than-50% chance the Fed will ease at its meeting, says strategist Kevin Hebner, who cites the need for additional labor market data. But he does see action at the September meeting as more likely. Mr. Hebner says he expects that when the Fed does ease, it will announce $500 billion in new asset purchases, likely focused on agency mortgage-backed securities.
–CAPITAL ECONOMICS: Recent U.S. economic data haven’t been weak enough to prompt Fed easing at this week’s policy meeting, says economist Paul Dales. Capital Economics expects the U.S. economy to grow 2% this year, which means that the 1.5% GDP second-quarter growth is only slightly below its potential and that the case for further stimulus is “not clear cut.”
–SOCIETE GENERALE: Economists expect the Fed to wait until September before launching QE3 since the central bank just announced in June the extension of “Operation Twist,” its program to buy longer-maturity Treasurys to lower long-term interest rates. At this week’s meeting, the Fed may extend its time reference for keeping low interest rates beyond late 2014, says head of research Stephen Gallagher.
–MILLER TABAK: Andrew Wilkinson, chief economic strategist, says he “wouldn’t be surprised” if the Fed announced another round of bond-buying Wednesday, adding that the Fed is more likely to act this week than in September. Potentially standing in the way of immediate Fed action are the jobs report for July due out Friday and the central bank’s annual Economic Policy Symposium in Jackson Hole, Wyo., at the end of August, but both events will be “overshadowed by the towering amount of evidence that the economy has slowed rapidly,” he says.
–BARCLAYS: The second-quarter GDP number is unlikely to shift the Fed’s debate over the need for further stimulus, Barclays says. Analysts continue to expect no additional Fed easing at this week’s meeting.
–NOMURA SECURITIES: Nomura doesn’t expect the Fed to announce any new policies this week because the data haven’t been weak enough to gather a strong consensus for stimulus, says strategist Charles St. Arnaud. The Fed is also likely to wait and see if the European Central Bank cuts rates at its meeting Thursday, Mr. St. Arnaud adds.
–CITIGROUP: Anyone looking for aggressive Fed action this week “will ultimately be disappointed” because the FOMC will likely wait for two more rounds of labor market and economic data before it acts, Citi analysts say.
–DEUTSCHE BANK: The GDP data confirm the prevailing view that “the Fed can wait for more clarity on the economy from the next two employment reports” before potentially launching another round of easing at its September meeting, says currency strategist Alan Ruskin. He notes that gold, which is often a gauge of QE expectations, has “appropriately come off a touch.”
–HIGH FREQUENCY ECONOMICS: Economist Jim O’Sullivan says new asset purchases by the Fed are more likely in September since much of this week’s economic data won’t be available to the Fed before the meeting ends, especially the July unemployment data coming Friday. The Fed will extend its rate guidance at this week’s meeting to mid-2015 from late 2014, Mr. O’Sullivan predicts.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
8 Comments
The Fed’s gotta give the market something. There’s too much anticipation.
Pushing on a string is pointless this month as much as at any time.
The Fed is impotent.
But market does not think so, it is salivating expecting lots of new QE3. Media and Ron Paul keep spitting around that nonsense about “money printing out of thin air”, is not QE technically the same thing as transferring funds from saving account into checking?
The main purpose of QE is reducing the interest rates to encourage some lending, even Bernanke told that. It might be some small benefit of QE3 if Fed will start buying MBS again and will drive interest rate on mortgages around 1% down, that might free around $100 a month for a qualified refinance. However, the “money printing” crowed will pour $$$ into commodities to drive oil, food and others up to spur inflation, which will quickly negate that $100. In addition, there is some cost to refinance and it might take a year or longer to recover that refinance cost, so no immediate positive impact for the economy, since the savings will be spent covering refy costs. There are going to be only negative impact of rising “transitionary” inflation “out of thin air”.
I do not even need a noble prize in economics to figure that out.
The Fed is impotent. What the market thinks does not change that fact one bit. I can feel the disappointment in the market already. This story just came across from Market Place:
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — The Federal Reserve will take the small easing step of pledging to keep rates low for longer at the end of its two-day meeting this week, analysts said on the eve of the event.
At the moment, the Fed has said it expects to keep rates exceptionally low until late 2014. Economists say the Fed is likely to push this out until mid-2015.
Ben might hold off for another month to give the impression the Fed is not beholden to markets (or to Chuck Schumer), but we all know the game here.
The wondrous levitation of the US stock market (in stark contrast to almost every other major international index which is poised on the edge of the abyss) is pretty much all the Fed can point to as evidence of policy success.
With an economy now on permanent recession-watch three years after it was supposed to have begun a recovery, the Fed absolutely requires stocks to continue to rise. It must persuade America that its actions can truly produce results.
Like the Wizard in the Wizard of Oz, it simply must keep up the illusion – or what psychological power will it have left?
And so Hilsenrath is despatched to tell the markets in no uncertain terms that the Fed will move. Therefore, there’s absolutely no doubt about it – the Fed will move.
Ever since his Lehman watershed, Bernanke has bent over backwards in an effort not to disappoint the stock market. I guess he might play hard to get with a little shimmy ’til September, but QE3 is coming and the market will respond accordingly. Bank on it.
“The Fed’s gotta give the market something” [LVG]
How about a meaningless statement about postponing the possible beginning of interest rate increases from 2014 to 2015? HaHaHahahahahah…
I am about to write my third story on the FOMC meeting. The first focused on the divisions between hawks and doves; the second on the push by doves for more action. I don’t know what my upcoming third story should focus on. I agree it looks like no major decision will come out of the meeting. Does this pave the way for a September announcement, two months before the November elections…?
Although the consensus is for no QE this week, markets seem to be expecting otherwise since Hilsenrath’s story last week. Left out of the push by many for more monetary stimulus is the fact that during the first half of this year the Fed has been very successful at stabilizing prices. (http://bubblesandbusts.blogspot.com/2012/07/current-fed-policy-successful-at.html)