Goldman Sachs is telling its clients to expect another round of quantitative easing from the Federal Reserve within the next year, which if it came about, would follow two previous efforts by the U.S. central bank.
"We now see a greater-than-even chance that the FOMC will resume quantitative easing later this year or in early 2012. We have changed our call because [Tuesday's] statement suggests that the committee's reaction function to incoming economic news is more dovish than we had previously thought," Jan Hatzius, chief economist at the firm, said in a research note.
Daily Ticker guest Doug Roberts, chief investment strategist for the Channel Capital Research Institute and author of Follow the Fed to Investment Success, would welcome the news, but he isn't as confident as Goldman about the Fed's future actions.
On Tuesday, the Federal Reserve said the economic recovery was occurring at a somewhat "slower pace" than anticipated. As a result, policy makers agreed to keep rates at "exceptionally low levels" through the middle of 2013. That's the first time the Fed has put a time line on its low interest rate policy. In addition, the statement does note that their were three dissenters on the committee -- an unusually high number.
Roberts says the growing dissent on the FOMC is a sign the central bank is getting more hawkish, not more dovish, as Goldman argues. It's a signal to Roberts that the Fed would prefer "to avoid doing some form of QE3."
The truth is Roberts hopes Goldman is right, because he thinks the market needs more assistance from the Fed. "They did too little in terms of what was expected and also maybe what was necessary for stabilization of the financial markets," he says. The market's 3% drop in morning trading may be a sign of traders' displeasure -- along with worries about the financial system in France.
The Fed's main problem remains, no matter what it does to prop up financial assets, and that is that "none of this is really doing much for the economy at all," Roberts says. For that, he says the U.S. needs structural changes to its fiscal policy.
- chief economist
- Goldman Sachs
- fiscal policy
- the U.S. central bank