FOMC likely to continue QE3 throughout 2013
Having just announced QE3 purchases of Treasuries at the December FOMC meeting, we expect the Fed to keep an even keel for policy in January and maintain the current pace of asset purchases. Despite the December minutes stating that the Fed may stop asset purchases “well before the end of 2013,” we look for the Fed to continue buying around $85 billion per month well into 2014. Note that the 2013 voters skew more dovish than in 2012, and the Fed’s forecasts for 2013 and 2014 growth remain above consensus. In each of the prior 4 years, the Fed also over-estimated near-term growth rates, and as it revised them down it maintained or expanded its asset purchases. We look for history to repeat, and for market expectations of an early end to QE3 to gradually be priced out.
Read the full report here.