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The Definitive QE3 Odds Calculator

Tyler Durden's picture


The odds of Fed easing at the September FOMC meeting seem close to 50-50 (with both sides vehemently talking their books - Fed officials and equity managers alike). Recent data has been a bit better: payrolls, claims, retail sales, and industrial production. As UBS' Drew Matus notes, other factors that will play a role include the ISM report, claims reports, and 'fiscal cliff'-related events. However, the primary determinant will be the upcoming August payroll report. The chart below ignores these other factors and offers up the odds of further easing in September based on the base case that Bernanke’s primary concern is the state of the US labor market. July’s 8.3% unemployment rate and payroll gain of 163k put current odds of further easing at 45%.



UBS: What To Expect From Wyoming

We look for Chairman Bernanke’s August 31st speech kicking off the Jackson Hole Conference to explain what mechanisms the Fed would use to ease further but avoid promising that further easing will be forthcoming. We believe that additional easing is conditional primarily on the behaviour of the labor market. Prior to the FOMC’s decision on September 13th, there will be an additional payroll report and two additional initial claims releases.

Alternatively, the absence of a detailed discussion on easing options may signal the Fed is more likely to wait until after the US election, resetting market expectations to the December 12th FOMC meeting.

We expect Chairman Bernanke to lay out a path of additional easing that would follow the Bank of England’s (BOE) “Funding for Lending” scheme to address the transmission mechanism of monetary policy rather than simply provide additional liquidity to market participants. We believe this experiment by the BOE will provide the inspiration for a Fed program through which banks would be rewarded (vis-à-vis the Discount Window) for meeting targets related to their behaviour: increasing bank lending, accommodating distressed mortgage refinancing or writing down principal for outstanding loans.

Although we would not necessarily expect a new program to provide much of a boost to the US economy, it would show that the Fed is willing to do more non-traditional activity and is willing to boost the size of its balance sheet to improve US economic outcomes. It would likely prove an appealing experiment for Chairman Bernanke and would have several advantages relative to another round of quantitative easing (QE).

  • First, it would not increase concerns around the proper functioning of either the US Treasury or mortgage-backed securities markets. This would be a significant advantage should the US hit the fiscal cliff, with the resulting sharp decline in Treasury debt issuance.
  • Secondly, the program would not immediately increase the size of the Fed’s balance sheet and would also likely not be as large as a QE program, limiting the impact on the currency.
  • Thirdly, the program would be more efficient as any subsidy would be directly tied to an improvement in lending/loan forbearance; in contrast, earlier QE arguably has boosted excess reserves more than lending.
  • Additionally, it is important to note that nothing would preclude further QE at a later date.
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Fri, 08/24/2012 - 13:59 | 2734494 malikai
malikai's picture

follow the Bank of England’s (BOE) “Funding for Lending” scheme

LOL. Yea, because it's working so great in the UK.

Fri, 08/24/2012 - 14:00 | 2734517 ACP
ACP's picture

Keep in mind the Fed's money printing never stopped since it restarted in Sep 2010...

Fri, 08/24/2012 - 14:11 | 2734560 TruthInSunshine
TruthInSunshine's picture

What a terrible web we weave when central banks engage in QE to deceive in an attempt to drive equity prices to levels nosebleed.


Oh well, if central fractional reserve banks are ultimately among the few entities owning equities, it won't matter anyways. They'll be able to trade bubble-licious 'stocks' with each other and collateralize them, also, all day and night long...


...Although the Nikkei would suggest they may not be very successful, and may fail hard(er).

Fri, 08/24/2012 - 14:12 | 2734569 fourchan
fourchan's picture

cnbc ran with that letter rumour, lol!

Fri, 08/24/2012 - 16:27 | 2735264 flacon
flacon's picture

Am I the only one getting tired of this relentless bull shit? Ahhh... but the beef is in the bull shit - it's the shit that keeps us alive, so we eat shit every day. 

Fri, 08/24/2012 - 14:13 | 2734573 CrashisOptimistic
CrashisOptimistic's picture

Anyone want to bet on the odds of QE3 if Brent is $125 next week?

Fri, 08/24/2012 - 14:16 | 2734595 The Big Ching-aso
The Big Ching-aso's picture



If Q3 happens then I think QE 3.1 is a shoo-in.

Fri, 08/24/2012 - 14:17 | 2734602 TruthInSunshine
TruthInSunshine's picture

The Bernank announces QE3 (formally), brent goes to $140-$150 in a matter of weeks thereafter, Obama has a teleprompter session in the Rose Garden blaming evil speculators (the ones who are prompted by The Bernank's actions), and there's a last minute announcement of a release of oil from the strategic petroleum reserve in a desperate bid to counteract spiking oil/gasoline/everything prices before November 6th.

Fri, 08/24/2012 - 16:30 | 2735276 Spastica Rex
Spastica Rex's picture

Cunning plan, Baldrick.

Fri, 08/24/2012 - 20:24 | 2735939 francis_sawyer
francis_sawyer's picture

Someone needs to get ahold of that calculator & hit the 'divide by zero' function...



Fri, 08/24/2012 - 15:03 | 2734845 mendigo
mendigo's picture

Deficit spending is pretty much a form of easing - with the exception that it should cause borrowing rates to rise. As with many things in the market it appears the effect is nonlinear and delayed. When the effect is apparent it will be too late.

Fri, 08/24/2012 - 15:35 | 2735007 Quinvarius
Quinvarius's picture

I do not agree that sucking money out of the private sector to fund government borrowing is easing.  I think it is the opposite.

Fri, 08/24/2012 - 13:58 | 2734500 Cognitive Dissonance
Cognitive Dissonance's picture

Can Goldman whip up a CDO squared on that QE3 odds calculator?

Just askin'

<I'd love some more table action. Never can have enough.>

Fri, 08/24/2012 - 14:48 | 2734772 Manthong
Manthong's picture

Oh heck..

"Communications policy” BS is working just fine to mislead and buoy equity and to give cover to the massive ESF operation behind the scenes..

and the Kabuki in Europe ought to distract just enough away from the fiscal cliff until after the election which will be the green light for Bernanke easing if Obama wins or it will be a disaster to snidely hand off to Romney and the Republicans if they win.

Fri, 08/24/2012 - 13:59 | 2734503 LMAOLORI
LMAOLORI's picture



"Although we would not necessarily expect a new program to provide much of a boost to the US economy, it would show that the Fed is willing to do more non-traditional activity and is willing to boost the size of its balance sheet to improve US economic outcomes."


Please get real it boost's the size of it's member banks portfolio's and Wall St. but doesn't help the economy or main street at all


U.S. Stocks Rise As Fed Sees ‘Scope For Further Action’

Fri, 08/24/2012 - 14:12 | 2734565 Hype Alert
Hype Alert's picture

Propping up the stock market isn't going to fix the structural problems that are preventing business from restarting.  People want a fair playing field.  All the FED has done is provide cover for the failed fiscal policies of the government (this includes congress, the administration and the courts).  The more the FED does to offset the failed policies, the more the FED has to do to offset.  Where are the adults?

Fri, 08/24/2012 - 15:09 | 2734873 Panafrican Funk...
Panafrican Funktron Robot's picture

"All the FED has done is provide cover for the failed fiscal policies of the government"

add:  TBTF banks

Fri, 08/24/2012 - 13:58 | 2734504 vast-dom
vast-dom's picture

8.3% unemployment? Try 17%+!

Fri, 08/24/2012 - 14:00 | 2734521 Cognitive Dissonance
Cognitive Dissonance's picture


Before you know it you're talking some real unemployment civil unrest.

Fri, 08/24/2012 - 14:21 | 2734619 vast-dom
vast-dom's picture

more like current TRUE 17%+...............21%...............24%.......SPLAT!

Fri, 08/24/2012 - 14:25 | 2734646 walküre
walküre's picture

Slaves can always find work. But can they afford to drive to their plantations?

Fri, 08/24/2012 - 14:46 | 2734742 vast-dom
vast-dom's picture

they'll use credit cards to gas up, until they can't at which point their wages will be X - d (debt) - apr (interest payments) = DEATH TO SLAVE

Fri, 08/24/2012 - 14:48 | 2734773 Cognitive Dissonance
Cognitive Dissonance's picture

Barracks are being constructed on the plantations as we speak. Problem solved.


Fri, 08/24/2012 - 16:34 | 2735289 _ConanTheLibert...
_ConanTheLibertarian_'s picture


Fri, 08/24/2012 - 14:00 | 2734514 LawsofPhysics
LawsofPhysics's picture

Garbage.  Catch-22 bitchez.  Can you say "interest rates"?  I knew you could.

Fri, 08/24/2012 - 14:05 | 2734539 Hype Alert
Hype Alert's picture

Can you say desperate?  There is no integrity left.  It really is all starting to sound like bullshit.  Anything to fluff the market.

Fri, 08/24/2012 - 14:00 | 2734515 pragmatic hobo
pragmatic hobo's picture

it seems like wall-street wants one of their own inside the white-house. If so what are the chance of bernanke unleashing qe3 which will only help obamma? perhaps obamma can get down on his hands and knees and kiss blankfein and dimon's ass, then fly to jerusalem and kiss the wall again, but short of that I don't see qe3 coming until after the election.

Fri, 08/24/2012 - 14:06 | 2734534 Abraxas
Abraxas's picture

"it seems like wall-street wants one of their own inside the white-house"

So, who does BO belong to? People?

Fri, 08/24/2012 - 14:13 | 2734575 Beam Me Up Scotty
Beam Me Up Scotty's picture

"So, who does BO belong to? People?"

I'd say he's done about as much to fluff Wall Street as any other president.  Win/Win for the Street.

Fri, 08/24/2012 - 14:03 | 2734535 SheepDog-One
SheepDog-One's picture

LOL theyre always had 'one of their own' in the White House.

Sat, 08/25/2012 - 03:46 | 2736422 bunnyswanson
bunnyswanson's picture



Goldman Sachs and the destruction of Greece

Fri, 08/24/2012 - 14:00 | 2734519 timbo_em
timbo_em's picture

Is a payroll report allowed to disappoint 3 month before presidential elections?

Fri, 08/24/2012 - 14:07 | 2734544 malikai
malikai's picture

Exactly. The Beaurau of Laughable Statistics is on the job. Guaranteed!

Fri, 08/24/2012 - 14:13 | 2734574 TruthInSunshine
TruthInSunshine's picture








Fri, 08/24/2012 - 14:43 | 2734744 cosmictrainwreck
cosmictrainwreck's picture

B. of "Laughable" Stats... good one! (new to me - but I'm retarded, too) up arrow

Fri, 08/24/2012 - 14:03 | 2734520 Jlmadyson
Jlmadyson's picture

No boost to the economy.


Yea they understanding how things work now.

Greece will blow up before the elections by the messages telegraphed by Merkel and friends today. No QE before the elections or emergency QE when Greece blows up which will do jack squat.

Fri, 08/24/2012 - 14:01 | 2734523 Comay Mierda
Comay Mierda's picture

anyone who thinks Amerika can finance it's insane deficits without money printing is out of their mind

Fri, 08/24/2012 - 14:16 | 2734597 Beam Me Up Scotty
Beam Me Up Scotty's picture

Correct.  Eventually, it will take every dollar of production of every citizen just to service the debt.  There won't be one thin dime left over for any "programs".   Tax the rich?  You can CONFISCATE everything they OWN, not only their annual labor, but everything asset they have, and it wouldnt fund the gubbamint for a year.  Then what?

Fri, 08/24/2012 - 14:18 | 2734611 Mr Lennon Hendrix
Mr Lennon Hendrix's picture


Debt/GDP is already +100%

Fri, 08/24/2012 - 14:25 | 2734630 Beam Me Up Scotty
Beam Me Up Scotty's picture

True dat.  So far, TPTB have been able to hide the hungry monster.  They won't be able to forever. 

Actually, all we are doing right now is making minimum payments on the credit card balance.  The minimum payments grow as the balance grows.  Sooner or later, you can't even afford the minimum payment.

Fri, 08/24/2012 - 14:20 | 2734617 walküre
walküre's picture

Right On. But they're not going to call for a QE in order to enrich your miserable status quo. That train has left the station 4 years ago and anything else since was just window dressing.

They will print and dilute the currency. It won't do anything for stocks or other paper assets. The only thing you and I will notice is that the Dollar is worth less and less and will eventually buy sweet fuck all. That way they're able to meet their obligations and won't have to increase the size of their debt and deficits.

Oldest trick in the book.

Fri, 08/24/2012 - 14:01 | 2734527 SheepDog-One
SheepDog-One's picture

Odds for QE announcement 0%.

Fri, 08/24/2012 - 14:03 | 2734533 Whoa Dammit
Whoa Dammit's picture

OT: NY Shooting--Looks like Bloomie's Army might have caused most, if not all, of the injuries

"Mr. Johnson, the commissioner said, was carrying a .45-caliber semiautomatic handgun “in a bag under his arm.” It had a capacity of eight bullets, officials said, adding that Mr. Johnson had fired three at the former co-worker, who was apparently a vice president at Hazan Imports. Mr. Bloomberg said Mr. Johnson pulled out his gun “and tried to shoot the cops and kill the cops.”

“They returned fire,” the mayor added. A law enforcement official said later on Friday that Mr. Johnson did not fire his weapon."


Fri, 08/24/2012 - 14:10 | 2734558 Rainman
Rainman's picture

UBS has some of it all wrong. The Euromess grand climax will have everybody begging Bernank to pull the trigger. He's too afraid of oil plus the Obama '12 campaign backwash to just blast away now without an underlying event. The event is coming and he knows it won't be pretty.

Fri, 08/24/2012 - 14:15 | 2734588 Jlmadyson
Jlmadyson's picture

Boxed in and diminishing returns.

Benny better hope a Lehman type failure does not occur overnight mid-week between now and the elections.

Good times at the Federal Reserve.

Fri, 08/24/2012 - 14:10 | 2734561 StockInsanity
StockInsanity's picture

I am so sick hearing about QE, I think I am trapped in a nightmare where only people on zerohedge understand how we are getting screwed

Fri, 08/24/2012 - 15:40 | 2735046 Quinvarius
Quinvarius's picture

I am sicking of hearing about how QE is something that has to be announced when it obviously went into high gear in May.  I can't believe people are sitting around waiting for Bernanke to announce how he just gave 3 trillion dollars away and plans to do another 250 billion.  He isn't saying.  He is just doing.  Congress gave him that power.

Fri, 08/24/2012 - 14:12 | 2734570 NEOSERF
NEOSERF's picture

Which as usual leaves QE being a crapshoot..

Fri, 08/24/2012 - 14:15 | 2734584 walküre
walküre's picture

Recent data has been a bit better: payrolls, claims, retail sales, and industrial production. As UBS' Drew Matus notes


It's all propaganda or wishful thinking. Not sure which is worse actually. People who are deliberately lying or people who are stupid fools.

It can't be the US data he's referring too. It cannot be the European data either. China is contracting as well. So which ass is Drew pulling the data from that is supposedly showing signs of an improving economy?

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