Bernanke to Cue QE3 in April?

Posted by Brittany Stepniak – Tuesday, March 27th, 2012

The end of an era is upon us. Tax breaks originally put in place by President George W. Bush are over. Additionally, a $1 trillion mandatory federal budget cut has analysts concerned that the economy’s growth rate will slow down dramatically.

Because of these factors, Bill Gross – the man who runs the world’s largest bond fund at Pacific Investment Management Co. – expects that Bernanke and the Federal Reserve will announce QE3 plans when they meet on April 25.

Mr. Gross even publicized this information on his personal Twitter account stating that the Fed is “likely to hint” at a third dose of debt purchases in less than a month.

Goldman Sachs is also speculating on the “accomodative policies” they suspect may be enacted by the Fed in the near future:

On monetary policy, the Chairman said that faster growth—perhaps needed to see further declines in unemployment—“can be supported by continued accommodative policies”. He also argued that because the increase in long-term unemployment was primarily cyclical, “then accommodative policies to support the economic recovery will help address this problem as well”. These statements were not necessarily calls for additional easing, but they clearly supported the Fed’s current accommodative stance.

In the previous two rounds of quantitative easing (QE1and QE2) policy makers purchased a total of $2.3 trillion worth of Treasuries and mortgage debt. What will that number look like when a third dose of easing is calculated into that equation?

It’s hard to say for sure, but Treasuries were sent to a 1.1 percent loss in March after the last meeting on March 13. That marks the steepest monthly decline since December of 2012. In that meeting, the central bank policy makers suggested an optimistic outlook for the economy…

Mortgage bonds are little changed in March, the Bank of America figures show, on speculation that another round of Fed purchases will focus on debt backed by home loans to bolster the housing market.

Pimco’s $252 billion Total Return Fund reduced holdings of Treasuries last month for the first time since February 2011, when it cut its stake in the securities to zero.

Although the economy has improved a bit with joblessness falling to 8.3 percent – the lowest rate in three years – investors are uncertain as to what to expect when the Bush-era income-tax cuts expire at the end of 2012. That will be immediately followed by the $1 trillion government spending reductions in January if Congress doesn’t prevent that from happening…

Chief investment strategist Robert Tipp warns that we have all seen this before: the first half of the year begins decently and then the second half requires a change of course in the financial realm.

Bottom line is that the nation’s economy is still struggling. Home sales feel to a 313,000 this past February making it the slowest since last October.

While at least Fed district bank presidents have remarked, saying that the strengthening economy may dissuade the Fed from initiating further monetary stimulus, the potential fro QE3 is still very much alive and well…

Be sure to keep an eye on Ben come April 25 to see if Bill Gross is right…

Via: Wealth Wire

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