The Real QE3 Question: What Can It Really Achieve?
By Michael Aneiro
Strategists continue this week to churn out predictions about what QE3 will look like, since it seems to be an accepted fact that there will be a QE3 announcement from the Fed later Thursday. (Some dissenters posit that the Fed may still opt to punt on QE3 for now, but will likely deliver later this year.)
The bigger question, of course, is what can further bond-buying, or stretching out the Fed’s low-rate forecast from 2014 to 2015, really achieve?
With the Fed already pinning down rates on riskless bonds, flows into fixed-income assets with riskier credit profiles than Treasuries, particularly high-grade and high-yield corporate bonds, continue at a torrential pace, even though yields are at or near record lows. Consensus is that the Fed will announce more bond buying, including the buying of mortgage-backed securities designed to more directly aid the housing market, but mortgage rates are also already pegged near record lows.
Jeffrey Rosenberg, BlackRock’s chief investment strategist for fixed income, notes that there’s little more that can be done to further incentivize risk-taking and borrowing:
You can lead a horse to liquidity…but you can’t make him borrow. That summarizes our take on global monetary policy post-financial crisis. Despite the Federal Reserve’s best efforts detailed in Chairman Bernanke’s recent Jackson Hole speech, monetary policy remains frustrated in the attainment of its goals for this simple reason. More of the same liquidity likely won’t help either to accelerate economic growth but will accelerate financial asset prices.
Despite raising the availability of borrowing and reducing its costs, credit usage across the economy remains below what normal policy accommodation would imply. Initially following the 2008 crisis this feature of lack of credit demand following policy accommodation could be seen across the economy. Neither businesses nor households utilized the cheaper credit. In this immediate post-crisis period, both households and businesses focused on repairing their over-levered balance sheets. However, we can see that for businesses, beginning around 2011, credit usage accelerated. For households however, the key source of credit demand – housing – remains impaired.
Furthermore, in the short term, it’s hard for many to see a post-QE3 bump in prices of stocks or bonds, seeing as markets have basically priced QE3 in already, leaving the Fed the choice between simply meeting existing expectations or disappointing markets altogether. From Michael S. Hanson and Priya Misra, rates strategists at Bank of America Merrill Lynch:
[W]e believe it is possible that the Fed will announce QE3 this week: we see a 50% probability of that happening, but an 80% chance by yearend. In that case, the Fed may simply ratify market expectations, as QE3 appears to be largely priced in. Our model for QE indicates a nearly 85% chance of further asset purchases being priced in to the market…
However, with Operation Twist continuing through December and with additional stimulus likely coming from the extended forward guidance, Fed officials may decide to hold off on QE3 this week. After all, “easing” need not necessarily imply QE. They also might need time to agree on an “open-ended” asset purchase plan that is tied to improvement in the economy rather than a fixed amount and date.
In this case, risk assets would likely selloff, led by stocks, gold, and foreign currency against the US dollar. However, the selloff might well be limited by the very dovish language in the statement and by Chairman Ben Bernanke’s comments during the press conference — both of which should signal that QE3 is just a matter of time. The rates market reaction in this scenario is likely to depend on the extent of the disappointment in risk assets. We expect the curve to flatten in a risk-off trade.
Of course, the most intransigent variable in all of this is employment, and there’s little sense that QE3 can represent anything beyond a marginal, incremental aid to what ails the labor market. |
发表于 2012-9-13 10:50
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发表于 2012-9-13 10:55
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