MICHELLE MEYER: We're Still Betting On QE3

Michelle Meyer

Photo: Bloomberg TV via YouTube

Earlier this week, Bank of America’s Michael Hanson wrote that there was a “significant chance of the Fed launching QE3 at the September meeting.”QE3 would be an effort by the Federal Reserve to lower long-term borrowing rates buy buying long-term bonds.

Earlier today, we learned that the economy added 163,000 new jobs in July, which was well ahead of expectations.

Bank of America’s Michelle Meyer writes that it is now “modestly less likely that the Fed needs to do QE3 in September”.

Nevertheless, their base-case scenario continues to be that we get QE3 before the year’s over.

From Meyer:

“The data over coming weeks – particularly the August employment report – will be critical. We believe the Fed will still push out its forward guidance at the next meeting from late-2014 to late- 2015, reflecting a downward revision to GDP forecasts and an upward revision to the unemployment rate.

We sense the Fed is in wait-and-see mode. If the data weakens through year-end as we forecast, we expect it will trigger another round of QE.”

Meyer says the uncertainty around the fiscal cliff and contagion fears from Europe will weigh on the U.S. economy. And with households not making any big purchases and companies cutting expenses the economy should grow 1 per cent in the fourth quarter.

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