Strategic Briefing | 6.22.2011 | The End of QE2

Economy’s ‘training wheels’ to come off
CNNMoney | June 22
The Federal Reserve’s latest round of stimulus ends on June 30, but economists think it’s no big deal. The policy, known as the second round of quantitative easing, or QE2 for short, is likely to have little effect on financial markets or the pace of the recovery, they say. “I don’t think the end of QE2 will have any significant immediate impact on interest rates, stock prices, jobs or the broader economy,” said Mark Zandi, chief economist with Moody’s Analytics.
Bernanke May Try to Spur U.S. Economic Growth by Extending Record Stimulus
Bloomberg | June 21
Federal Reserve Chairman Ben S. Bernanke will probably delay the central bank’s exit from record stimulus, economists said in a survey, giving the flagging economy a boost without resorting to additional asset purchases. Seventy-nine percent of 58 economists expect Bernanke to sustain the Fed balance sheet at current levels until October or later, compared with 52 percent who held that view before the Fed’s last policy meeting in April, according to a Bloomberg News survey conducted last week. Ninety percent of those surveyed predict the Fed will wait until the fourth quarter before dropping its pledge to hold interest rates low for an “extended period.”

The U.S. Federal Reserve Plan For QE3 – And Why It’s a Done Deal
MoneyMorning | June 22
When U.S. central bank policymakers conclude their two-day meeting today (Wednesday), there’s really only one question investors want an answer to: What’s the U.S. Federal Reserve plan for QE3? Let me answer that for you: QE3 is a done deal – although Fed Chairman Ben Bernanke & Co. might well give it another name… Here’s what I see: Instead of printing more money, the Fed is likely to start reinvesting the proceeds of maturing debt. Ultimately, that won’t reduce our government’s bloated, toxic balance sheet. But it will change the makeup of that balance sheet – and not for the better. I believe the Fed will also attempt a freeze of some sorts that effectively removes pressure from the U.S. Treasury markets that would otherwise crater it. At the same time, I can easily envision continued demand for U.S. Treasuries from abroad that will confound such well-known Treasury bears as Pacific Investment Management Co. LLC (PIMCO) star Bill Gross, who has been wrong on Treasuries before.
FOMC meet may disappoint investors , says AMP Capital
MoneyControl | June 22
All eyes are on the Federal Reserve today. According to Shane Oliver, Head Investment Strategy & Chief Economist, AMP Capital Investors, the Federal Open Market Committee (FOMC) meeting could disappointment investors. “On the one hand, there will be a downgrade to growth expectation, but Ben Bernanke is unlikely to signal any shift, any move anytime soon towards quantitative easing 3,” he added.
Treasury Note Yields Stay Below 3% for a Sixth Day Before Fed’s Decision
Bloomberg | June 22
Bernanke and his fellow policy makers have given no indication they’ll tighten policy anytime soon. With manufacturing slowing and unemployment increasing during May to 9.1 percent, the Fed chief said this month growth is “frustratingly slow.” The unemployment rate in the U.S. unexpectedly climbed to 9.1 percent in May and payrolls grew at the slowest pace in eight months, according to Labor Department figures on June 4. “If we see the same jobs numbers next month, market expectations for QE3 will increase,” said Tsutomu Komiya, who helps oversee the equivalent of $115.4 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second- biggest brokerage by market value. Yields will probably fall below 2.88 percent, 2011’s low set last week, he said.
Fed’s 3-Year Rescue Plan Falling Short of Promise
The New York Times | June 22
The Federal Reserve hoped that its three-year-old economic rescue campaign would reach a climax at the end of June. It hoped that consumers and businesses by now would be spending more and more, and the central bank could start doing less and less. That peak now looks like a long plateau. The Fed still is expected to announce Wednesday that it will halt the expansion of its aid programs at the end of June, as scheduled, when it completes the purchase of $600 billion in Treasury securities. But growth is sputtering, and economists now expect that the Fed will leave its $2 trillion of bandages, props and crutches untouched until next year.
Global economic slowdown just a ‘lull’
CBC News | June 21
With the end of QE2 looming in the United States and concerns about a sovereign debt default in Greece reaching a fevered pitch, the global economy looks to be firmly mired in a rough patch at the moment. However, there is still hope, with Nariman Behravesh, chief economist with IHS Global Insight, calling the current problems a “temporary lull in the global expansion” that can still be reversed. “There is no need to panic — yet,” Nariman Behravesh, chief economist with IHS Global Insight, said in a report Tuesday. “This is unlikely to be the precursor of another recession. While the balance of risks has shifted a little to the downside, IHS Global Insight still assesses the probability of a more robust scenario at 20%, compared with 25% for a return to recession.”