THE FEDERAL Reserve has discussed how it can improve the communication of its policies to the public, it was revealed last night, stoking rumours that a third phase of the controversial quantitative easing programme (QE3) could be on the way.
“A few” of the Fed’s committee believe the economic outlook may be grim enough to warrant more asset-buying, according to the minutes of its November meeting.
And the minutes added: “It was noted that any such accommodation would likely be more effective if it were provided in the context of a future communications initiative”.
However, only one official – the über-dovish Chicago Fed president Charles Evans – voted in favour of QE3 this time around.
Markets across the pond had been hit in morning trading by ongoing worries over the Eurozone and a significant downwards revision to America’s third quarter GDP estimate.
Official data showed the US economy grew at a two per cent annual rate in the three months to September, below the government’s initial growth estimate of 2.5 per cent and below expectations of no change in the first estimate.
However, the Fed’s hints of QE3 provided some boost to hopeful traders. “That the markets rose on the simple fact that QE3 was not ruled out shows just how desperate they have become,” commented Marcus Bullus, a trading director at MB Capital.
“As is the case in the UK, it’s this constant lack of clarity around the direction of the economy that is proving so destabilising to Fed policymakers. Like the MPC, they’re building castles on sand.”
Markets had also been hit by the latest failure of senior US politicians to come to agreement over deficit-reduction plans.
Yesterday President Barack Obama shifted into campaign mode, calling on Congress to extend a payroll tax cut that is due to expire.