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PIMCO'S Gross says Fed to unveil QE3 at Jackson Hole

InvestorInvestor
edited June 2011 in Off-Topic
http://www.reuters.com/article/2011/06/22/us-pimco-fed-gross-idUSTRE75L4L820110622

I doubt Fed will do much more than holding interest rates low and re-investing maturing debt back.

Several things will be supportive by then:

1) When QE2 is announced the FOMC was highly criticized. There is not much will among FOMC to have another round of QE even if the economy is in mild need of it. Besides an extra year has given banks and other entities to sort their affairs. So, there is probably less need for support than last year.

2) Second round effects of Japan earthquake, tsunami will diminish. Supply chain will recover some giving economy a boost in the second half.

3) China will probably be slow down interest rate and reserve ratio increases in the second half. Slowdown in China had second round effects in other sectors. Those will ease probably towards 4th Q. Having said that the inflation problems in China is due to wage increases. While commodity based inflation is transitionary, wage increases (to create a domestic demand) is more permanent inflation which is harder to resolve.

4) Energy prices in particular and commodity prices in general dropped some recently supporting growth in the second half.

5) Conference Board's LEI is up indicating growth for the second half.

6) Government sector layoffs which has been a headwind for employment situation will reduce in the second half. Less headwind will mean better employment reports going forward.

7) It looks like politicians will debate to the last second but will approve US debt limit increase. The businesses are putting pressure on both parties to get this done. There will be political posturing and some longer term cuts to satisfy the constituents.

8) Greek debt issue will be under control. It looks like Greek parliament will approve austerity measures despite protests and IMF/EU will keep money flowing there preventing contagion effects.

9) Libya is probably on a path to resolution.

10) Gross was wrong. He is trying to save the situation.

Comments

  • Old_JoeOld_Joe
    edited June 2011
    Hi Investor-
    Ever the optimist! I sure hope that you're right, though.
  • InvestorInvestor
    edited June 2011
    Hey after my initial post, I've edited and found more reasons against Mr. Gross' argument.
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