Capital Economics released a statement on Friday indicating its prediction that the Federal Reserve will “provide more policy stimulus” when the Federal Open Market Committee meets in September, most likely in the form of a third round of asset purchases.
While Capital Economics thinks this is the “most likely scenario,” it thinks a better option to boost growth would be to cut the interest rate payable on excess reserves as long is it was supplemented by a complementary “funding for lending” program.
The FOMC announced on Wednesday that it would keep interest rates low through at least 2014, but held back on announcing any further stimulus.
“The committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” the committee said.
The target rate of funds will stay between 0% and 0.25% for the next two years, unmoved since the Fed lowered the rate coming out of the 2008 financial crisis.
