QE3 Is Coming - Goldman Sachs
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Economists at Goldman Sachs said QE3 is likely on its way following a review of the Federal Reserve's statement yesterday.
"We now see a greater-than-even chance that the FOMC will resume quantitative easing later this year or in early 2012," chief economist Jan Hatzius said. "We have changed our call because today's statement suggests that the committee's reaction function to incoming economic news is more dovish than we had previously thought."
The Federal Reserve's promise to keep the federal funds rate at least through mid-2013 was a major surprise and historic, according to Goldman.
Commenting on the unusually high dissidents, Hatzius said "We view Chairman Bernanke's willingness to live with the dissents as a strong signal that he and the rest of the Fed leadership view the need for renewed easing as more important than the institutional norm of consensus decision making."
Hatzius said the easing bias in the last paragraph of the statement was more explicit than they had anticipated. "The phrasing somewhat echoed the promise in the September 2010 statement," he stated.
The easing tools that the Fed will likely use will need to be "powerful." This would likely include "conventional" QE, but could also take the shape of rate caps, a price level or nominal GDP target, or interventions in non-government securities markets.
"We now see a greater-than-even chance that the FOMC will resume quantitative easing later this year or in early 2012," chief economist Jan Hatzius said. "We have changed our call because today's statement suggests that the committee's reaction function to incoming economic news is more dovish than we had previously thought."
The Federal Reserve's promise to keep the federal funds rate at least through mid-2013 was a major surprise and historic, according to Goldman.
Commenting on the unusually high dissidents, Hatzius said "We view Chairman Bernanke's willingness to live with the dissents as a strong signal that he and the rest of the Fed leadership view the need for renewed easing as more important than the institutional norm of consensus decision making."
Hatzius said the easing bias in the last paragraph of the statement was more explicit than they had anticipated. "The phrasing somewhat echoed the promise in the September 2010 statement," he stated.
The easing tools that the Fed will likely use will need to be "powerful." This would likely include "conventional" QE, but could also take the shape of rate caps, a price level or nominal GDP target, or interventions in non-government securities markets.
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