Tags: Morgan | Stanley | Fed | Easing

Morgan Stanley Downgrades Chances of Fed Easing

Thursday, 05 Apr 2012 07:46 AM

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U.S. investment bank Morgan Stanley has cut its forecast for the possibility the Federal Reserve will stimulate the economy via quantitative easing, putting the likelihood at one in three from a previous forecast of two out of three.

The Fed has slashed interest rates to near zero but when such traditional policies don't work, it floods the economy with liquidity by buying assets from banks, a policy technically known as quantitative easing but dubbed by critics as printing money out of thin air.

Such policy, often a hot-button issue, sends stock price rising, the dollar weakening and inflationary pressures building.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

At a recent Federal Open Market Committee meeting where such issues are discussed, Fed officials said such a measure would be considered only if inflation rates largely reversed course and fell to the point that economy would be threatened.

Morgan Stanley analysts say easing is growing increasingly unlikely, though not impossible.

“With our economic forecast, though, we still believe it is possible that signs of slowing growth will accumulate to the point that the Fed provides accommodation," says Morgan Stanley chief economist Vincent Reinhart, according to CNBC.

Reinhart, who used to work at the Fed, says the U.S. central bank is noticing an increase in demand for goods and services increase to the point that supply is strained.

"That means they think there’s less slack in the economy than they once thought and, therefore, more risk of inflation rising," Reinhart says.

The Fed has already rolled out two rounds of quantitative easing since the downturn, and the Fed's recent words quashed hopes for a third round, known as QE3

"It seems the market is really disappointed," says Charles Comiskey, head of Treasuries trading at the Bank of Nova Scotia in New York, according to Reuters.

"I guess they were expecting more emphasis on the possibility of QE3 going forward."

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans



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