(US) Fed’s Williams (voter, dovish): Fed is falling short on both its mandates, expects little progress on either mandate in 2012, it is essential for the Fed to continue providing support. Fed is ready to do what is necessary to attain maximum employment and price stability. Extending Operation Twist will only have a modest impact. More bond purchases, including MBS, would be the most effective tool if more Fed easing is needed.
(US) Fed’s Rosengren sees a possibility for QE3 depending on upcoming data, as the June jobs data was disappointing.
(US) Fed’s Evans (FOMC alternate, dove): Economic conditions warrant extremely strong accommodation. Sees US Unemployment staying well above sustainable levels for some time and should not raise interest rates until Unemployment Rate moves below 7% or inflation above 3%. Stressed that the US needed a high degree of monetary accommodation and that damage intensified the longer Unemployment remained high. The Euro crisis and US fiscal cliff posed significant downside risk to US and global economies.
(US) Friday July 6, 2012 – 5:42pm EST: Late session strength widely attributed to US financial press (The Wallstreet Journal) report suggesting that the disappointing non farm payrolls increases the odds of QE3 from the Fed. Says the disappointing jobs data does not necessarily ensure more easing. Reiterates that some Fed officials would consider the option of purchasing mortgage bonds, as some research suggests it is more effective at lowering a wider range of interest rates. Points to changing inflation outlook as a result of declining commodity prices potentially supporting the dovish camp on the FOMC.
As far as analysts are concerned, here are some of their analysis, coutesy of WSJ.
How to interpret these headlines?
Market recovered sharply towards the end of U.S. session on Friday as if QE3 was announced; but in reality, the Feds didn’t make any new announcement nor was there any breaking news. Traders attributed the optimism to the WSJ article, pointing to the fact that it could be a direct “hint” from the Feds (*wink *wink) as WSJ is often used by the Feds for “intentional leaks”. Of course, there are no confirmations over this, and market is likely to focus on the upcoming testimonies by Bernanke next week for further confirmations… But assuming the Feds is going with QE3, we’ll probably not see anything until after mid of August, as the next Nonfarm Payroll (NFP) will be crucial.
All in all I would probably hold off from SELLING USD on potential QE3 concerns… Market is still very risk adverse and unless we see an official announcements for a substantial sized QE program ($500B or more), it will probably do little to change risk sentiments and reverse USD’s course.
Feds Signal Potential Quantitative Easing (QE3), Or Did They?
July 9, 2012 by 2 Comments