Barring a major surprise, the Fed is expected to launch a second round of quantitative easing – moves to increase money in the economy, such as purchasing treasuries or other assets – in November or December. Since the fed funds rates is already almost zero, it can’t cut interest rates further. The FOMC’s opinion that inflation is already lower than what it would like suggests its tolerance for deflation risk is so low that the Fed will “provide additional accommodation” unless there is a major shif in the upcoming data. And there is very little data coming out before the November meeting that appears likely to shift the inflation outlook, according to Michael Cloherty, head of U.S. Rates Strategy at RBC Captial Markets in New York. There is only one CPI report before the Fed meeting and even if we see a slight uptick in the year-over-year reading, he said it probably won’t meet the threshold required to keep the Fed on hold.
Fed expected to launch a second round of quantitative easing
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