Fed seen buying up to $100 billion in assets a month: poll By Chris Reese |
Thu Oct 28, 1:49 am ET
NEW YORK (Reuters) – Most leading
economists expect the Federal Reserve to buy between $80
billion and $100 billion worth of assets per month under
a new program to bolster the struggling economy, a Reuters
poll found on Wednesday.
Estimates for how long the Fed will print
money and how much it will eventually spend varied widely,
from $250 billion to as high as $2 trillion.
In a similar Reuters poll of primary dealers
conducted on October 8, dealers mostly forecast the total
size of the new program at $500 billion to $1.5 trillion.
"The key question is not the size of
the first step, but how far Fed officials will ultimately
need to move to achieve their dual mandate of low inflation
and maximum sustainable employment," said Jan Hatzius,
chief U.S. economist at Goldman Sachs in New York.
Goldman estimates the eventual size of QE2
could reach $2 trillion, at the high end of economists'
forecasts.
The economists think the impact of the asset
buying could be limited given that markets have already
priced in the effect of another big round of monetary stimulus.
The median of forecasts from economists
at primary dealers pegs benchmark 10-year Treasury note
yields at 2.65 percent as of mid-2011, just below their
current level near 2.72 percent.
Lower Treasury debt yields, which are a
benchmark for interest rates like those on mortgages, will
be considered a key gauge of success for the new quantitative
easing program from the U.S. central bank.
Seventeen of 18 primary dealers responded
to the poll, with all saying they expect the U.S. central
bank to announce another program of quantitative easing
-- dubbed QE2 -- at the close of the Fed's policy meeting
on November 3.
While seven of 10 economists who replied
to the question said QE2 will pull 10-year Treasury yields
lower, several economists said they believed rates already
had come down because of the looming prospect of more Fed
purchases.
"I would argue that quantitative easing
already has worked -- you have seen in terrific improvement
in U.S. financial conditions over the last few months including
a weakening of the dollar, lower U.S. interest rates and
a strengthening of stock prices," said Zach Pandl,
U.S. economist at Nomura Securities International in New
York.
He added: "a lot of that has been brought
about by quantitative easing and the market pricing it in
to an extremely high degree."
"The next debate is how much will U.S.
growth improve because of the change in financial conditions,"
Pandl said.
Benchmark yields are historically low. Earlier
this month the benchmark yield dipped to 2.33 percent, the
lowest since December 2008, at the height of the global
credit crisis.
Quantitative easing is not an unfamiliar
road for the Fed. The U.S. central bank previously bought
about $300 billion of longer-term Treasury securities from
March through October, 2009 as part of its efforts to combat
the U.S. recession.
Including mortgage-related debt, the Fed
has bought a total of $1.7 trillion in assets to prevent
the U.S. financial crisis from turning into a depression.
With the recovery still weak, policymakers have said they
are ready to take more action.
The Fed announced in August it would also
buy Treasuries using funds from maturing agency bonds and
mortgage-backed securities in an effort to keep steady its
holdings of domestic securities.
Fed officials have expressed concern recently
about low price inflation.
The median of forecasts from economists
gave only a 15 percent chance the world's largest economy
would fall into deflation, or a sustained bout of declining
prices, by mid-2011.