The Fed is now buying $85-B of Treasury and mortgage bonds a month in what is known as quantitative easing is now dubbed (QE-Infinity).
When the Fed started buying long-term bonds, in what was called QE-1, it said the program would last 6 months. But it started another round of assets purchases, and then another, without setting a firm ending dated. That is why the latest reiteration of the program is called QE Infinity.
“Look, every government program that is introduced under urgency and as a temporary measure is always permanent,” Mr. Faber explained. “The Fed has boxed itself into a position where there is no exit strategy.”
The continuing QE is counterproductive, he noted, stating benefits flow only to a limited number of people.
And, although inflation continues to remain subdued, Mr. Faber sees “a colossal asset bubble” as well as a debt bubble.
“The quantitative easing is wind at the back of the economy,” he said. “But when they unwind quantitative easing, which they will ultimately have to do, it will be a head wind in the face of the economy. And then it will not be so much fun.”
Few believe the Fed will increase QE or make it permanent, more experts are predicting the central bank will maintain its current level of bond purchases into next year because of growth disruptions caused by the government shutdown.
A survey of 40 economists indicated the Fed will decide to reduce its purchases to $70-B a month in March 2014, to $25-B by July and end the purchases in October 2014.
The shutdown cut economic growth by 0.3 percentage points in Q-4, the economists said. It also suspended data collection the Fed uses to set policies.
It is going to be harder to signals from the data, Fed’s policies are tied to the data, they waiting for more confirmation the economy is moving in the direction of the Fed’s outlook, and they do not have data or the data is inconclusive, then the Fed will not feel confident enough in the outlook to make a clear determination to pare or not pare. This is a continuing story, stay tuned…
- Source, Live Trading News: