SocGen predicts MBS-focused QE3 in January
French investment bank Société Générale believes a third round of quantitative easing from the Federal Reserve will be announced in January. The buying, they expect, will begin soon after in March.
That's when the next Federal Open Market Committee meetings will be held and a decision on interest rates made.
"QE3 remains in our central scenario and is likely to follow changes in communication strategy," said SocGen researchers in a note to clients. "The next round of QE, expected to come at the March FOMC meeting, will likely be heavily focused on MBS purchases."
They expect around eight months of MBS buying from the Fed, at around $75 billion per month, with a pre-commitment to about eight months’ worth of buying. This would increase the Fed’s securities portfolio from $2.65 trillion currently to $3.25 trillion by the end of 2012.
"Turning to the Fed, we believe that the next step will be an announcement of a conditional-trigger policy, with rates promised to be kept at zero until unemployment falls below 7.5% or inflation rises above 3% on a sustained basis," the analysts said. "Based on our forecasts, this would put the first hike in 2016."
Additionally, SocGen expects greater financial austerity packages from whoever is elected the next president in the United States as budget concerns will reach breaking point and delays in solutions to the nation's debt must be addressed.
Write to Jacob Gaffney.
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