It has been over a month since a new round of Quantitative Easing was announced. As announced September 13th, the Fed is buying “additional agency mortgage-backed securities at a pace of $40 billion per month”.
The purpose of their easing method is to help but, in the long run it could hurt, very badly. I tend to think the Fed is running out of options, interest rates are at ground level, and they say to themselves “We need to do something.” Therefore, they put all their eggs in one basket called QE3. They may as well called it “QEternity” (a term I saw ZeroHedge use) because the Fed make it clear that: “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases..”.
This means there is no reason to expect a QE4 because QE3 won’t stop until the economy has approved. This is especially disturbing because there are no defined improvement markers. The Fed didn’t state what “improve substantially” looks like. Hopefully the Fed at least has a secret definition of “improve substantially”. Without clearly defining a plan, we plan to fail. A vision without a plan is a fantasy.
In October, we have seen wonderful U.S. news. I mean, awesome! We have observed Building Permits, Unemployment Rate, Consumer Sentiment, not to mention the United States Presidential Election that is on it’s way. The Dollar has been looking (or at least, sounding) pretty sharp.
October 23rd, and 24th will hold the latest FOMC meetings. Wednesday the 24th, a statement will be released. Very critical issues will be discussed in these meetings but there is a good chance the statement will not contain any crucial final decisions on these issues.
With the election two weeks away, the Fed is unlikely to make an earth-shaking announcement but non-the-less, let’s look at some discussion possibilities.
The central bank (Fed) will consider expanding it’s bond-purchasing at the end of this year.
Many economists think that the Federal Reserve will not only expand the amount of buying with QE3 but also, they think the Fed will buy Treasurys in the place of the current Mortgage Backed Securities.
According to Market Watch “the Fed may abandon its calendar-date approach to forward guidance and adopt some form of numerical target for policy, according to analysts.”
It would be great to see some numbers. QE3 is pretty open ended right now, to say the least. Having numbers and goals in place could very well give the American people some confidence in the Fed.
With some confidence in the Fed’s policy, it’s possible the U.S. Dollar could benefit in the short term. Long term, I don’t think the USD will benefit from QE3, my view of QE3 can be found in this article: Quantitative Easing: QE3.
In conclusion, this week’s FOMC Meetings are the last before the Election. Though crucial issues are being discussed, it is likely no final decisions will be made on these topics. The statement, scheduled to be released Thursday at 2:15pm does have the potential to affect the Forex Market though.
If you haven’t seen Casey’s recent article on Forex Trading, don’t forget to check it out!
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