Five reasons why the Fed would prefer to avoid QE3
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The Fed appears to have moved away from the notion of additional bond purchases in recent weeks, for a mix of tactical and practical reasons including:
1. Policymakers worry about venturing any further into uncharted territory.
2. Growth isn’t weak enough to make a clear case for additional monetary easing.
3. Many officials think QE is better at thwarting deflation than boosting employment.
4. Cutting rates before a presidential election is probably not ideal timing.
5. Bernanke would like to save the Fed’s remaining ammunition for a truly rainy day.
And yet 11 of 15 primary dealers polled by Reuters following a disappointing March payrolls report still believe the central bank will ultimately embark on another bond-buying stimulus plan. Given the Fed’s rather high bar for further asset purchases, that must mean these banks expect the economic backdrop to get materially worse from here.
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