Some of them, like Talal Abdullah, Financial Analyst at ICN.com, expect this to happen before the end of 2012: "I do believe that the U.S. economy is still weak and far from healthy, so I think the Federal Reserve will monitor the economic data in the U.S. economy closely, and if it shows more weakness, QE3 will be adopted at the end of this year to support growth and help the economy withstand looming threats, especially from debt-troubled euro zone."
Others, like Adam Narczewski, Financial Analyst at X-Trade Brokers, XTB, show their skepticism about Bernanke's speeches effect to boost the US economy. "It could be said that Bernanke disappointed investors with his speeches providing no insights into the Fed plans. We have heard 'the Fed is ready to act' phrase so many times that it gets old. I am surprised Bernanke makes a big mystery out of the possible tools the Fed might use to stimulate the economy since it does not have so many of them." He said.
The Fed will announce its monetary policy decision on August 1 at 16:30 GMT. Below you will find full commentaries of the contributing analysts.
Alexandra Estiot - Senior Economist at BNP Paribas:"The Fed is definitely ready to implement further monetary easing. However, this will not happen on August 1st, as this two-day meeting without a scheduled press briefing will the occasion to sort out the ways and means. Risks weighing on employment are clearly on the downside as are the ones weighing on inflation, a perfect mix for monetary easing. As for the former, they are related to two elements beyond the Fed’s reach: the sovereign debt crisis in the eurozone and the fiscal cliff in the US. Those risks on prospects for demand prevent the US corporate sector from hiring and investing while exercising downward pressures on core prices for tradable goods. This is why the Fed is both ready to act and reluctant to do so as it is rather difficult to assess the effects, the costs and the benefits of further unconventional measures. A recent speech from the President of the San Francisco Fed confirmed that the Fed is willing to act, but is also searching for more bang for the buck. Minutes of the meeting will hopefully provide us with the details of QE3, which we expect to be launched from September. It will probably be more focused on MBS than on Treasuries, while Mr Williams mused on the possibility of an open-amount open-ended programme."
Yohay Elam - Analyst at Forex Crunch:"The Federal Reserve isn't likely to announce any new measures. There's little the Fed can do at the moment. Bernanke already said in the past that more QE has "diminishing returns". With yields at record lows, more stimulus will not help. What the FOMC could do is alter the statement, and show more readiness for action in the future. Such hints could help the markets and keep hope for QE3 alive. They could also extend the pledge to keep rates low beyond the current wording of "late 2014" to 2015. This is another form of verbal stimulus, without any real action. The recent decision to extend Operation Twist seems like a substitute to QE3."
Ilian Yotov - FX Strategist and Founder at AllThingsForex:"The Fed's policy-guiding decision to pump additional $267 billion into the U.S. economy by extending Operation Twist triggered monetary policy easing measures by other central banks. The meeting in August could have the same effect, especially if the Fed announces another round of quantitative easing. The Fed Chairman has made it clear that he is prepared to do more and U.S. economic data in recent months has failed to convince policy makers that the economy and the labor market are improving. This is why it would not be shocking to witness a QE3 announcement as early as August 1, or after the Fed's next meeting on September 13. QE3 expectations will continue to weigh on the USD."
Steve Ruffley - Analyst at Tradermaker.com:"The FOMC meeting in August would be a prime opportunity for additional stimulus, if the expectations of many in the markets is to be expected. However, last week we heard nothing concrete in terms of options that the Bernanke bunch would be willing to consider and this we feel adds further evidence to our previous argument that any extra stimulus has been put on the back burner at least until the first quarter of 2013.
Bernanke has continually championed the fact he expects the unemployment rate to fall slowly for the foreseeable future and it will be this data that will sway the open market committee in any future initiation of Quantitative easing or stimulus.
The actual effects of QE are in the spotlight with many arguing it's long term effectiveness is not worth the cost and so we expect this month’s FOMC to be a damp squib and see little or no action to be taken before the U.S. election campaign concludes."
Bill Hubard - Chief Economist at Markets.com:"I think the Fed wants to do something more that will stimulate the economy. Bernanke has probably seen enough to be convinced that aggregate demand is too slack to help the labour market. He will, therefore, want to do something to increase demand because he thinks that will in turn spur hiring. Inflation is trending down and the Fed’s favoured measure of inflation, the PCE deflator, is below its target level, so concern on prices is not a deterrent to acting. If Bernanke is ready to move once again he will carry the day at the FOMC. If this assumption is correct, what will the Fed do next?
Our view is that the Fed will require additional time to gauge economic trends, time that was spared by extending ‘Operation Twist’. Before further policy action, the Fed will want to prove whether recent employment data is the usual summer slowdown, or if the current softening is more persistent amid heightened European risks and potentially sharp fiscal tightening.
This would leave a decision on QEIII to occur at the September 13th FOMC meeting at the earliest."
Talal Abdullah - Financial Analyst at ICN.com"The Federal Reserve Chairman Ben Bernanke signaled in his latest testimony before the U.S. House that Fed is ready to act in this coming period to support the economy, signaling the situation in the U.S. remains firm and moderate so far this year.
The Federal Open Market Committee decided recently to expand the "Operation Twist" program by $267 billion through the end of the year.
In fact, this expansion of the operation twist program aims to replace short-term bonds with longer-term debt by an amount of $267 billion through the end the year as a way to reduce the unending jobless levels of the superpower and also create downward pressure on longer-term interest rates to also boost up better financial conditions.
Basically, I do believe that the U.S. economy is still weak and far from healthy, so I think the Federal Reserve will monitor the economic data in the U.S. economy closely, and if it shows more weakness, QE3 will be adopted at the end of this year to support growth and help the economy withstand looming threats, especially from debt-troubled euro zone."