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Fed Likely To End $300 Billion Treasury Purchases

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Fed Likely to End $300 Billion Treasury Purchases, Meyer Says

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By Steve Matthews

Aug. 5 (Bloomberg) -- The Federal Reserve is likely to let its plan to purchase up to $300 billion in U.S. Treasuries expire in mid-September as scheduled, and its decision may be announced next week, former Fed Governor Laurence Meyer said.

Plans to buy as much as $1.25 trillion of mortgage-backed securities and $200 billion of federal agency debt expire at the end of the year, so the decision on whether to extend them may be delayed, Meyer, vice chairman of St. Louis-based Macroeconomic Advisers LLC, wrote in a report released yesterday.

The Federal Open Market Committee “is unlikely to extend the life of these programs, unless, of course, either the economy or the financial markets take a significant turn for the worse,†Meyer said. “We therefore expect the FOMC to announce at its upcoming meeting that it will allow the Treasury purchase program to expire in mid-September.â€

The Fed lowered its main interest rate almost to zero in December, switching to asset purchases and credit programs as the main policy tools. The Fed kept its asset purchase plan unchanged in June and will consider the program again next week. It plans to release a statement on Aug. 12.

“I don’t think this is a close call in terms of the ultimate outcome,†Meyer said in an interview. While a few committee members may believe a decision on the bond purchases could be put off a month, “it would be extremely surprising if they left this to be made in September, which is right at the time the program is expected to end.â€

‘Significant Deterioration’

Some Fed Bank officials signaled in June they didn’t favor expanding the Fed’s balance sheet further. “It would take a significant deterioration relative to our outlook for me to view our current policies as inadequate,†Chicago Fed President Charles Evans said. Richmond Fed Bank President Jeffrey Lacker said, “Right now, I don’t see a reason to increase†bond purchases.

“It is hard to justify becoming more aggressive with stimulus when the economy seems to be improving, many forecasters are revising forecasts upward and financial conditions have improved so sharply,†Meyer said in an interview.

Economic reports in the past few weeks have suggested that the deepest U.S. recession in at least five decades may be coming to an end.

Former Fed Chairman Alan Greenspan said Aug. 2 that the recession seems to be ending and the U.S. economy may expand at about a 2.5 percent pace in the current quarter. Economists surveyed by Bloomberg News last month forecast growth of 1 percent in the July-through-September period.

The U.S. economy contracted at a better-than-forecast 1 percent annual pace in the second quarter, the Commerce Department reported July 31. Stabilization of the housing market and consumer spending, a lessening of financial turmoil and increased government spending all suggest the recession may be close to ending.


Will the US economy have enough strength to stand on it's own two feet?

Sqeaky bum time methinks.

Edited by MOP

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Its sham on sham

they use sham GDP figures to suggest they are ending QE.

its an excuse....US housing is not moving, debt is still a huge issue, wages are lowering.

they hope that all the GDP and QE finishing good news will stimulate in itself.

cant see how 1.6% fall in wages and tax rises are going to allow borrowing to resume.

Whats the bet that now the UK and the US are announcing its all better now, we hear other CBs making similar announcements.

course, come September, as people come back to work, things will look good at first then the truth will dawn....but by then, it will be a NEW crisis calling for a fresh approach.

Edited by Bloo Loo

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“is unlikely to extend the life of these programs, unless, of course, either the economy or the financial markets take a significant turn for the worse,â€


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