Fed Will Launch Some Form Of Quantitative Easing (Tomorrow)…

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(US) Analysts generally expect the Fed will launch some form of quantitative easing (QE3) at the meeting, by either expanding its balance sheet and/or extending Operation Twist.

(US) Goldman Economist Hatzius: reiterates Goldman expects there will be some form of monetary easing announced at tomorrow’s Fed meeting.

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  • Fed will most likely ease monetary policy, reduce its GDP forecast at the meeting.
  • Fed may further expand its balance sheet and/or expand operation twist.

How to interpret these headlines?

While Bernanke has kept his cards close to the vest before the Fed meeting, speculations are running rampant due to recent slew of negative economic indicators out of U.S.  With the focus on the Fed to save the economy, market is optimistic over Wednesday’s Fed meeting that some sort of Quantitative Easing is likely to be announced, or at the very least, an extension of the current Operation Twist program.

If we examine the timeline of future Fed meeting schedules, we’ll see that if the Feds don’t make any Quantitative Easing announcements on Wednesday, the next meeting will be on August 1, that’s 40 days away.  Considering the format that the Feds used to use to announce these new measures, I believe it is very likely that they will make an announcement on Wednesday during a “scheduled” press conference… Because let’s face it, the Fed will not risk an unscheduled announcement sending out a desperate message, nor fail to prepare the market ahead of time… So if no announcements were made during Wednesday’s meeting, then expect it on August 1, with full implementation on September 13, the Fed meeting after… and considering the deteriorating economic conditions and the fact that pressures are piling up on the Feds from all sides, and of course to avoid the criticism of launching another QE too close to Presidential election in November, I believe we’ll see USD weakening on Wednesday.

 

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