Deutsche Bank Expects The Fed To Announce QE With No Fixed-Size Or End-Date

joe lavorgna

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All eyes will be Ben Bernanke and the Federal Reserve as they announce their decision on the direction of monetary policy at 12:30 PM this afternoon.Most economists expect the Fed to announce an extension of low interest rate guidance into 2015. 

They also expect the Fed to announce some form of quantitative easing – an effort to lower borrowing costs for businesses and consumers.

However, no one agrees on exactly what the new QE package will look like.

Deutsche Bank’s Joe LaVorgna and Carl Riccadonna expect QE to be open-ended, but tied to economic conditions.  Here’s what they said in a note to clients:

At the conclusion of today’s meeting, we expect the FOMC statement (12:30 pm) to issue a strong verbal easing by pushing the fed funds exit guidance from “late 2014” to either mid- or late-2015—or it may be more directly tied to economic developments. In addition, we also expect the Fed to announce another round of quantitative easing, which will likely include both Treasuries and MBS. Contrary to prior rounds of QE, we do not expect a fixed size or end-date to be announced, rather policymakers will pursue an adjustable, open-ended program which will be modified as economic conditions (read employment conditions) warrant. We expect them to announce an initial monthly amount, probably in the vicinity of $50B. While the size/composition could be modified over time, it will not be a volatile month-to-month adjustment process. Lastly, we do not anticipate any actions regarding interest on reserves. –CR & JL

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