Fed View: QE3 is still on the table, despite no signals from the Fed

Although Fed officials continue to signal no imminent QE, I still expect QE3 to be announced in June.

• Over the last month US economic releases have generally been weaker than the consensus estimates – something I have warned about for a while.
• Nevertheless, I do acknowledge the risk to my call for QE3 to be announced in June has increased. The reason is that none of the FOMC members are currently pushing for additional easing, although the Fed still maintains an easing bias.
• Thus, it seems that the US economy would have to deteriorate significantly for QE3 to be implemented.
• Particularly, it will likely require weak employment reports for both April and May, with average monthly payrolls growth of 100k-150k and a renewed decline in the employment/population ratio, for QE3 to be announced in June.
• And this is what I expect to see as the mild winter weather effects continue to fade and rising gasoline prices continue to cut into purchasing power.
• But if job growth rebounds strongly and the employment ratio increases, QE3 would be off the FOMC table in June.

Conclusion: Expect renewed pressure for QE3

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