Reinhart: 80% Chance Fed Will Ease – Quantitative Easing

(US) Following Friday’s release of weaker than expected US nonfarm payrolls data, an article in the NY Times quoted former Fed economist Reinhart as stating that the probability that the Fed will ease at its next meeting has risen to about 80% vs. 50% prior.


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(US) Fed’s Pianalto: Weaker May jobs data may be part of a seasonal pattern, and not likely to alter her economic outlook. (after NFP)

  • Still updating my personal forecasts; Fed policy is appropriate for now.
  • Latest employment report unlikely to alter her outlook.
  • Prepared to do more only if economic forecast substantially deteriorates.

(US) Fed’s Rosengren: A big fiscal shock would not raise the risk of a new recession, expects elected officials to find a compromise for the fiscal cliff issue. (before NFP)

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  • Too early to say what the best options are for more stimulus, absence of inflation gives the Fed scope for action.
  • Would not support tightening policy until unemployment is below 7%.
  • Reiterates support for more Fed stimulus; renewing operation twist would spur growth.
  • Sees inflation at or under the Fed’s 2% target for some time to come
(US) US Fed’s Bullard: Continues to see US 2012 GDP at +3%; sees additional QE possible if the US economy deteriorates. (before NFP)
  • QE looks unlikely as the US economy is on track for a moderate recovery
  • Forecasts end-2012 US unemployment at 7.8%.
  • Europe’s situation is grave situation; ECB liquidity injections not a fundamental solution.
  • Sees Greece can exit the euro without much damage to the European Union.
  • Safe haven flows affecting FX markets
  • Asset purchases to allow BoJ to reach 1% price goal

How to interpret these headlines?

To Quantitative Easing, or not to Quantitative Easing, that’s question… and to answer that, we have to really read between the lines of these Fed officials and focus on the timing of the stimulus… We know that no QE3 will be announced before Operation Twist “OT” is over, that’s why Big Ben was quiet for the past few months… Now that “OT” will expire this month, and given the fact that last 3 month average NFP is at 87K, I believe there is a chance that the Fed will announce “something” soon, although they could very well delay until next months… And by the looks of it, Bernanke might not be the only one hesitant over another QE as there hasn’t been enough time to evaluate “OT” yet…

I believe the market will be disappointed as the FOMC will probably delay QE3 until the next meeting, after the June NFP release in July, as a quarter of bad employment data might be more convincing than just a couple of months, especially the Fed still have time to act before the Presidential election…


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  1. Thank you Henry for your insights -i do have a Q.
    Henry the employement data in the USA did look bad -but do all the Major Countries have the same rules for instance in Aus. if you work only 2hrs a week it is classed as a part time job, If the USA rule would be that a part time job is 8hr a week (like it used to be in Aus) that would be equivalent to 4 part time jobs created in Aus. So Aus.Gov. boosted they created more part time jobs but how reliable is that -logically the markets react but in the USA if their standards are different they may well do far better then here, what is your view please?..

    • very interesting question but there are other metrics such as average hourly earnings and the average work hours in the U.S. to give a more detailed picture.

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