- This article, written by Alessandro Balsotti is taken from the FX Trader Magazine (OCT/DEC 2012 issue).
When I started to write this article few days ago “QE3” was supposed to appear in the title. A third round of Quantitative Easing had in fact been well flagged from Fed Chairman Ben Bernanke in his recent - much awaited – speech at the yearly Jackson Hole symposium on August 31st.
What has been announced in the meantime, on the September 13th FOMC, went well beyond market central expectations. Probably even beyond what the most dovish analyst could reasonably be anticipating.
From the Federal Open Market Comitee Press Release:
"To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”