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What Is QE3

August 5, 2011 by staff 

What Is QE3What Is QE3, In a note tonight, Dan Greenhaus BTIG look forward to a big meeting next Tuesday the Federal Reserve.

Ultimately, we expect little change in either policy or statement, other than the obvious recognition that things are not necessarily going as planned.

Greenhaus still not in the shopping QE3, as many are, but does provide some possibilities of what might be called QE2.5.

The Federal Reserve has three intermediate options: The first stop of the Fed is almost certain that its communications strategy. Simply, the Fed could commit to the even longer period. The expectations hypothesis suggests that the commitment to keep short rates low for longer, the rates further in a similar curve would be reduced. If the Fed believes that the reduction in interest rates is encouraging, then this is a way to achieve this end

The Federal Reserve could cut interest on excess reserves (RIPE). During the crisis, the Federal Reserve was able to pay interest on excess reserves of new creation in the banking sector, arguing it would help to control inflation, the Federal Reserve. With the generation of loans running at fairly low levels, some have speculated that the Fed could cut the rate paid by RIPE to stimulate lending. The SNB has sometimes been imposed negative interest rates for several reasons and that maybe, in order to stimulate lending; the Fed could raise the cost of maintaining these reserves by reducing the rate paid

The Federal Reserve could play with your balance. On the one hand, the Fed is in the process of reinvestment MBS maturity treasuries. That could push these rollovers – and currently running 10 – and 14 million dollars a month – more away from the curve to lower interest rates in the medium and long term. You can also start a new program to buy bonds but there is considerable uncertainty expressed by Bernanke himself, as to what the effects of a new plan may have. In addition, any new plan would be quite large in size, and at least 1 trillion, in order to achieve a significant reduction in interest rates. A purchasing plan of that size could reduce rates of up to 100 bps.

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