Photo: Jordan Roy-Byrne, CMT
Goldman Sachs analysts predict that the Fed will continue QE3.
According to Zerohedge, which has more of the report, Goldman analysts write that they see a “greater than even chance” of the FOMC resuming QE” in late 2011 or early 2012. They cite the deteriorating economic outlook as the reason.
What form will it take? According to Zerohedge, Goldman says that “$1 trillion of asset purchases–or an equivalent increase in the duration of the Fed’s balance sheet–might increase GDP growth by up to 0.5 percentage point.” It would be in the form of either:
- another expansion of the balance sheet OR
- an increase in the duration of the Fed’s balance sheet without expanding it
Goldman made their prediction before Ben Bernanke’s speech at Jackson Hole today. Bernanke is expected to “hint” about what he will do with regards to QE3. The speech is at 10 AM today.
Now the bad news from the report:
There is, however, reason to believe that QE3 might be less effective in easing financial conditions than the first two rounds of purchases. This is because Fed asset purchases are likely to have larger effects during times of extreme market stress, and particularly when they are targeted at a specific market dislocation, like the mortgage-related purchases during QE1…
[Our] analysis suggests that QE3 is unlikely to be a panacea for growth. Nonetheless, our estimates suggests that $1 trillion of asset purchases–or an equivalent increase in the duration of the Fed’s balance sheet–might increase GDP growth by up to 0.5 percentage point in the first year after any announcement of QE3.