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Goldman says QE3 likely after Fed statement

By Reuters
Wednesday, August 10, 2011 7:32 EDT
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SINGAPORE (Reuters) – Goldman Sachs said on Wednesday a third round of quantitative easing from the Federal Reserve is likely after the U.S. Federal Reserve promised to keep rates at extraordinarily low levels for at least two more years.

“We now see a greater-than-even chance that the FOMC will resume quantitative easing later this year or in early 2012. We have changed our call because today’s statement suggests that the committee’s reaction function to incoming economic news is more dovish than we had previously thought,” Jan Hatzius, chief economist at the firm, said in a note.

The explicit commitment to keep policy rates low through mid-2013 and a bias to easing policy further were more aggressive than expected and resulted in Goldman penciling in QE3 after the previous $600 billion bond-purchase program ended in June.

Hatzius said he thought the fact that Fed Chairman Ben Bernanke went ahead with a promise to keep rates low within a specific time frame despite three dissents in the policy-setting committee was a sign the rest of the central bank believe renewed easing is important.

(Reporting by Kevin Plumberg; Editing by Ramya Venugopal)

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