QE3 in August

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The WSJ’s inimitable Hilsenrath has made it clear that the Fed is about to act.

The onus is now on the data to stop them from easing

Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own

And the debate is no longer if it is how and when

Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.

Interestingly, the story has lots of space devoted to options for driving fed effective lower. Who said eurodollars were expensive?

This should be good for global duration, and good for the AUD.

If the pushes the AUDUSD back to 1.12 on the cross, i am pretty sure the damage caused will boost the unemployment rate, push down on inflation, which will eventually bring the RBA back to ease policy.

But that will all take time – assuming QE3 and a stronger AUD i still think the next realistic window for a cut is November (with the usual EU explosion caveats).


  1. How do you reconcile with this previously espoused view:

    The focus on the weaker AUD also misses a key subtly when thinking about ‘growth currencies’. A strengthening AUD may reflect rising ‘market’ forecasts of global growth, and a weaker AUD may reflect declining global growth expectations. We need only worry about AUD movements if they are out of step with changes in the growth outlook.

    Wouldn’t looser US monetary policy and the consequently stronger US growth help us? Think of the converse – the Fed rules out any more QE. This would effectively tighten policy, pushing up the USD and pushing down the AUD, but it wouldn’t be stimulatory for us overall.

    1. I judge that the speculative flows on QE massively out weight the actual growth benefits of the policy. I doubt changing the maturity structure of government debt – which is all QE is – does much at all. However, it does drive short term capital flows.

      Sent from my iPad

  2. I seem to recall Williams saying adding $600b is around reducing interest rates by 75 basis points.
    Will they go the whole hog?


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