Echos from the Hole

Quick expectation points from 3 economists at large investment banks whom we expect to be attending the Jackson Hole, Wyoming Symposium:

“We suspect that the Fed is likely to outline a range of potential policy actions that may include the extension of the Fed’s treasury holding maturities, a potential cut in the excess reserves held by member banks at the Fed and changing the composition of the its balance sheet through MBS purchases and Treasury sales.”

“Investors will focus on potential markers and triggers for additional stimulus, in particular regarding the potential launch of a new large scale asset purchase programme (QE3), which we do not expect to be announced at Jackson Hole, or any other policy response such as a lengthening in the maturity of its current portfolio of securities.”

Whilst we do not expect out-right QE3 we think that the Fed has the headroom to “sell short-term securities and buy long term securities in equal amounts. This could lower long-term rates and flatten the yield curve without increasing the absolute size of the Fed’s holdings. But like many such policies, the devil is in the details.”

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