Dealers Think QE3 is Inevitable
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Fed chief Ben Bernanke and his crew may be up to it again as we are hearing the Fed will begin buying bonds in the open market in an attempt to inject more money into the economy. According to a Bloomberg survey of primary bond dealers, 16 of 21 said the Fed could buy up to $545 billion of mortgage securities over the next several months.
Bank of America (NYSE: BAC), a primary dealer, says that number could be as much as $800 billion when adding in potential purchases of U.S. Treasury bonds.
From late-2008 through last June, the Fed bought about $2.3 trillion of Treasury and mortgage-related bonds. One BofA analyst noted since May 2009, unemployment has remained around 9 percent while housing prices continue to tumble, albeit at a slower pace.
With $1.2 trillion of automatic spending cuts expected to start in 2013 due to the failure of Congress to reach an agreement on which branches should take a haircut in order to start reducing the deficit, U.S. gross domestic product in the third quarter was revised to 2 percent. And with debt issues in Europe lingering, many wonder whether this new round of quantitative easing will make a difference, or fall flat like the original packages.
The Fed originally bought $1.7 trillion of government and mortgage debt from December 2008 through March 2010, and $600 billion from last November through June. The Fed has kept interest rates low (between 0 and 0.25 percent) since the start of easing.
Bank of America (NYSE: BAC), a primary dealer, says that number could be as much as $800 billion when adding in potential purchases of U.S. Treasury bonds.
From late-2008 through last June, the Fed bought about $2.3 trillion of Treasury and mortgage-related bonds. One BofA analyst noted since May 2009, unemployment has remained around 9 percent while housing prices continue to tumble, albeit at a slower pace.
With $1.2 trillion of automatic spending cuts expected to start in 2013 due to the failure of Congress to reach an agreement on which branches should take a haircut in order to start reducing the deficit, U.S. gross domestic product in the third quarter was revised to 2 percent. And with debt issues in Europe lingering, many wonder whether this new round of quantitative easing will make a difference, or fall flat like the original packages.
The Fed originally bought $1.7 trillion of government and mortgage debt from December 2008 through March 2010, and $600 billion from last November through June. The Fed has kept interest rates low (between 0 and 0.25 percent) since the start of easing.
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