What Do Economists Expect From The Fed?
A wonderful sheep-like 88% of all economists surveyed in a recent Bloomberg poll believe QE3 is inevitable - up from 76% at the end of July. 64% are convinced the LSAP will be announced tomorrow. Perhaps more interestingly, given the reality of flow over stock efficacy, 32 of the 73 expect an open-ended QE program - of around USD65bn TSYs or USD35bn MBS per month. In line with our own market-implied expectations, the median estimate for QE3's size is USD700bn (split between TSYs and MBS - which likely reflects the size constraints of the Fed's already huge dominance of the TSY market). Perhaps most surprising is that only 68% expect an extension of the rates guidance - and paradoxically, given all these expectations for moar money, is that 49% of those surveyed believe Fed policy is too easy. Perhaps this response best sums up the quandary that the Fed finds itself in, sadly, "Disappointing the markets doesn’t seem like a good strategy, but it’s not obvious how much more GDP to expect if they fulfill market expectations for more action."