Tags: Pento | Fed | QE | debt

Money Manager Pento: Don’t Look Now, But QE5 Is on the Fed's Agenda

Friday, 22 Feb 2013 08:18 AM

By John Morgan

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The Federal Reserve is only a few steps away from unveiling another round of quantitative easing as a way to defeat the next recession, according to investment manager Michael Pento.

Pento, president of Pento Portfolio Strategies, predicted the new handicaps of increased taxes, rising interest rates and record gasoline prices for this time of year would prompt the Fed to act.

“I believe that you have tremendous headwinds heading into the economy in 2013,” he told Yahoo. “You add all that up, and you understand why the Wal-Mart customer has pulled back their wallet and their pocketbook and their purse.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Either a confirmed new recession or unemployment rising back over 9 percent will force Fed Chairman Ben Bernanke’s hand, according to Pento. Two negative quarters of gross domestic product back to back define a fresh recession, and the United States already had one negative one in the fourth quarter of 2012.

If the United States does head into another recession, Pento noted, the Fed has three options: do nothing, start draining the Fed’s balance sheet or increase the amount of the Fed’s debt purchases.

“Given the Fed’s history, [increasing the amount of the Fed’s purchases is] the most likely course of action,” Pento told Yahoo. He said Bernanke “doesn’t understand that his balance sheet is unshrinkable.”

Pento predicted the next quantitative easing, which would be QE5 on his scorecard of the Fed’s easy money program, could raise the government’s monthly debt purchases from $85 billion per month to as much as $150 billion per month.

The prevailing sentiment at the Fed, as conveyed by the minutes of its January meeting and by members’ recent remarks, is that the central bank’s efforts to pump tens of billions of dollars into the economy every month should not end anytime soon.

A number of officials said that their evaluation of costs and benefits of the policy “might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,” according to the minutes.

“Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor-market outlook had occurred,” the minutes showed.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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