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BofA Merrill Lynch Global Research – A US Economics Report – Monday, 10 December 2012

Fed likely to add outright Treasury buying to QE3

Despite somewhat better data on net recently, the recovery has not yet improved “substantially” in the eyes of most Fed officials. That suggests to us Fed policy will remain accommodative well into next year. Specifically, with Operation Twist set to expire at the end of December, we look for the Fed this week to announce an extension of its longer-dated Treasury purchases, at a similar pace of $45 bn per month, beginning in January 2013. We expect the $40 bn per month MBS purchase program to continue as well. Less likely, in our view, is an introduction of explicit quantitative thresholds to guide policy – at least not at this meeting.



Read the full report here.