From the FOMC minutes from the meeting 3 weeks ago: “Participants exchanged views on the likely benefits and costs of a new large scale asset purchase program. Many participants expected that such a program could provide additional support for the economic recovery both by putting downward pressure on longer term interest rates and by contributing to easier financial conditions more broadly.” “However, others questioned the possible efficacy of such a program under present circumstances, and a couple suggested that the effects on economic activity might be transitory.” Also, some members were worried about the markets for Treasuries and MBS if the Fed did more while others were not. On an exit one day, “several worried that additional purchases might alter the process of normalizing the Fed’s balance sheet when the time came to begin removing accommodation.” A few were worried about the risks to financial stability and inflation with extended accommodation or more QE. Lastly of importance, “many” wanted any new QE to be “flexible to allow adjustments, as needed, in response to economic developments or to changes in their assessment of the efficacy and costs of the program.” Bottom line, of the 10 voting FOMC members, 8 are doves so it will always be the case that “many” are ready for more QE if need be. The hawks are few and far between. I stick to my belief that more QE is coming on Sept 13th as the Oct meeting is too close to the election and Bernanke won’t act in Dec if Romney wins. This could be his last chance for a while and Ben still seems to believe in the pixie dust of QE.
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