FXstreet.com (Barcelona) - The FOMC starts its two-day meeting and is considering several options for giving the economy a boost. The most part of the media and banks research teams are doing their bets on the Fed's decision that will be released on Wenesday. "The fact that the Committee extended its current asset purchase program, Operation Twist, at its last meeting in June would present a substantial hurdle to launching another asset purchase program (QE3 or sterilized purchases) this week." Said Philip Marey, Senior US strategist at Rabobank. What’s more, "the Committee may prefer to have some ammunition left to offset the fiscal cliff, which will present itself at the start of 2013. Therefore, we would probably have to see a further deterioration in economic data or at least a prolonged episode of the weak data that we are seeing now, before the Fed makes that decision. However, the Fed does have other options that may offer some support in the meantime. " He added.
On the other hand, Geoffrey Yu, FX strategist at UBS explained that the banks' economists have changed their view on Fed policy and now they expect a further easing programme in September. However, "our economists do not expect this to come in the form of Large-Scale Asset Purchases (MBS or Treasurys). We now expect the Fed to 'undertake an easing program within the discount window facility', 'hich provides bank with access to even lower cost funding – even at zero– to banks with certain lending or possible debt forgiveness targets,'" he said. "Given the discount window is collateralized, and any programme would be subject to restrictions, the sense of ‘debasement’ is probably less palpable and markets would need to find a new reaction function with respect to the dollar. Given investors’ recent tendency to reward policy innovation, we do not expect immediate challenges to the dollar, but are cognizant of the fact that this represents new territory for the dollar itself and the market may take its time to factor in the implications." He added.
FXstreet.com published it's own forecast for the Fed meeting. With Fed's chairman Bernanke statement that he is "prepared to do more" in mind, all the analysts polled by our editor's team preview that the QE3 is at the gates. However, the most part agree that it's unlikely to be in August, since September 13th FOMC meeting seems a most factible date.
On the other hand, Geoffrey Yu, FX strategist at UBS explained that the banks' economists have changed their view on Fed policy and now they expect a further easing programme in September. However, "our economists do not expect this to come in the form of Large-Scale Asset Purchases (MBS or Treasurys). We now expect the Fed to 'undertake an easing program within the discount window facility', 'hich provides bank with access to even lower cost funding – even at zero– to banks with certain lending or possible debt forgiveness targets,'" he said. "Given the discount window is collateralized, and any programme would be subject to restrictions, the sense of ‘debasement’ is probably less palpable and markets would need to find a new reaction function with respect to the dollar. Given investors’ recent tendency to reward policy innovation, we do not expect immediate challenges to the dollar, but are cognizant of the fact that this represents new territory for the dollar itself and the market may take its time to factor in the implications." He added.
FXstreet.com published it's own forecast for the Fed meeting. With Fed's chairman Bernanke statement that he is "prepared to do more" in mind, all the analysts polled by our editor's team preview that the QE3 is at the gates. However, the most part agree that it's unlikely to be in August, since September 13th FOMC meeting seems a most factible date.
