WSJ: Smaller Than Expected QE 2

The newspaper with the best track record on guessing (or maybe pre-announcing)  FED policy changes reports that the QE 2 size will be smaller than market expects.

The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.

The Fed’s aim is to drive up the prices of long-term bonds, which in turn would push down long-term interest rates. It hopes that would spur more investment and spending and liven up the recovery. But officials want to avoid the “shock and awe” style used during the crisis in favor of an approach that allows them to adjust their policy, and possibly add to their purchases, over time as the recovery unfolds.

My impression was that FED is going to announce at least $1,2 trillion over 12 months; and I think that market expected something above $1,0 trillion. If WSJ is right this could be big disappointment.

Looks like Fed got scared with commodity prices rising and is now baking away:

But commodities prices are also soaring, with copper, gold and oil prices rising 16%, 8.1% and 13% respectively. That could portend more inflation than the Fed wants. At the same time, the dollar has slid nearly 10% against the euro; that could help U.S. exports, but it creates tensions with trading partners. A sharp drop in the dollar could give Fed officials pause.

WSJ: Fed Gears Up for Stimulus.

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This entry was posted on Wednesday, October 27th, 2010 at 2:35 am and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

One Response to “WSJ: Smaller Than Expected QE 2”

  1. FOMC Statement – November 3, 2010 | Tainted Alpha Says:

    […] than consensus, but less what was expected before WSJ story. The pace of asset buying on lower bound of […]


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