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Economists spent the afternoon thumbing through the minutes of the June Federal Open Market Committee (FOMC) meeting.They were searching for clues on what the Fed’s next move might be.
Bank of America’s economics team led by Michael Hanson and Ethan Harris think that the next move is QE3, a form of monetary policy that involves buying certain securities to lower interest rates.
From this afternoon’s note to clients:
The minutes from the June FOMC meeting revealed a larger number of Fed officials either favouring or willing to consider additional easing if conditions weaken. Members noted even greater uncertainty and risks skewed to the downside, suggesting that additional easing may occur sooner rather than later. We expect that the outlook will be weak enough to warrant addition Fed easing by the September 12-13 FOMC meeting; we look for Fed officials to both push out their forward guidance on rates until at least mid-2015 and to launch QE3.
During the June FOMC meeting, the Fed announced the extension of its maturity extension program (MEP), aka “Operation Twist.” In an MEP, the Fed buy long-term bonds and finances those purchases by selling short-term bonds. Ultimately, the goal is to lower long-term interest rates.
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