Additional easing by the Fed at its September FOMC meeting
Global & Regional Focus Notes
12 September 2012
• Given the weak pace of the economic recovery and the recent disappointing employment report, the Fed will very likely announce a new round of quantitative easing at the September 12-13 FOMC meeting.• The evidence from the past few years indicates that both forward guidance and large-scale asset purchases are powerful monetary policy tools when short-term interest rates are constrained by the zero bound.
• We expect the FOMC to proceed with an extension of its forward rate guidance with a promise to keep rates at exceptionally low levels until mid or late 2015 compared to the current guidance for late 2014. Forward guidance since the adoption of the zero bound has led to an immediate decline of 14bps on average in long-term yields.
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