Fed Meeting Notes And QE3

Fed Meeting Notes And QE3

FOMC notesWant to know what  Ben Bernanke and the Fed are thinking? The most recent FOMC notes have been released. (image flickr/Medill DC)

Key Highlights of the FOMC’s July Meeting

Yesterday, the Federal Reserve released their notes from the most recent FOMC meeting. It seems that there was a much greater discussion on QE3 than previously thought.

QE3 – Will It Ever Happen?

The meeting notes have given hope to investors who have been waiting for a new package from the Fed to help stimulate the US economy. The Fed notes stated that

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery”.

This is making many, including PIMCO’s Bill Gross excited:

 

In addition, the Fed expressed that the current state of the economy “warrant exceptionally low levels for the federal funds rate at least through late 2014”. In other words, low interest rates are here to stay for quite some time:

“it was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed,”

 

Force Banks To Lend?

A couple of Fed members also expressed interest in exploring programs similar to the Bank of England’s Funding for Lending Scheme which seeks to encourage lending to households and firms.

Under the Funding for Lending initiative, the Bank of England will lend money at below-market rates to the financial institutions. The Bank will then monitor their progress in lending the cash out, with the hopes that this action will further encourage lending.

Clearly, Fed members realize how strict lending rules have become. I wonder if this means the Fed will be looking at ways to “force” banks to lend – as they seem reluctant to do so in today’s economy.

 

What’s Next?

How soon may we see QE3? The next official meeting of the FOMC is scheduled for September 12-13. However, Fed Chairman, Ben Bernanke, we be speaking at a Jackson Hole forum held for central bankers on August 31st. Bernanke will have an opportunity to present his views and maybe hint at what the Fed will do next. (Interesting note: the 2010 Jackson Hole forum was where Bernanke announced the second round of bond buying by the Fed).

 

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