QE3 is on track to be its largest Fed’s bond-buying program yet
NEW YORK (CNNMoney) QE3 is on track to be its largest bond-buying program yet, if it follows the path predicted by Wall Street.
The Fed was expected to wind down its third round of quantitative easing, known as QE3, at the end of this year. But most predictions are now well into 2014, with some as far out as June.
Economists largely believe the government shutdown and debt ceiling debate have forced the Fed’s hand, creating a weaker economic outlook and muddying the data the central bank relies on to make decisions.
Given this environment and the leadership transition as Ben Bernanke’s term ends in January, the Fed will likely continue its current stimulus program at full blast — buying $85 billion in bonds each month — until at least March 2014.
That means QE3 could total around $1.6 trillion, calculates Paul Ashworth of Capital Economics. That’s more than either of its two predecessors. In contrast, QE1 totaled $1.5 trillion and the second round of stimulus added up to about $600 billion.
“There is a danger that the Fed has missed its window of opportunity,” Ashworth said in a note. “If it’s waiting for some degree of fiscal certainty, this really could turn into QEternity.”
With bond purchases of this magnitude, the risks to financial stability are rising.