Tags: Pimco | Gross | Fed | easing

Pimco’s Gross: Fed May ‘Hint’ at More Easing at April Meeting

Monday, 26 Mar 2012 07:07 AM

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The Federal Reserve will hint that it favors rolling out more extraordinarily loose monetary policy tools such as quantitative easing, the third such round since the downturn (known widely as QE3) at its next meeting, says Bill Gross, founder of Pimco, the world's largest bond fund.

While individual Federal Reserve governors have come out publicly for or against quantitative easing, which are asset purchases from banks designed to kick-start the economy when normal measures like rate cuts aren't enough, the Fed officially remains mute on the matter.

That will change at the Fed's April policy meeting, Gross says on his Twitter account, stating the Fed is "likely to hint" at QE3 in April meeting.

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

Markets play close attention to signs of easing, as it pushes up stock prices, weakens the dollar and fuels concerns that inflationary pressures will arise down the road as a trade off for jolting the economy today.

The Fed has rolled out two rounds of quantitative easing since the downturn, injecting $2.3 trillion into the economy via buying assets from banks, mortgage-backed securities and Treasury bonds namely.

Not only does quantitative easing juice markets, it stokes fears the Fed is concerned with the pace of recovery and is willing to increase inflationary pressures to avoid further price and employment declines.

Officially, the Federal Reserve recognizes improvements seen in the labor market and in other areas of the economy, such as in the manufacturing sector.

Plus yields have been climbing in government debt markets, a sign investors are selling safe Treasury bonds to stock up on equities in anticipation of more robust economic output.

However, in 2010 and in 2011, the economy began both years performing well only to hit soft patches and level off.

That may be happening now.

The Commerce Department recently reported that new single-family home sales fell 1.6 percent to a seasonally adjusted 313,000-unit annual rate in the U.S. last month.

January's figures were revised down to 318,000 units from a previous 321,000 reading.

The news came in wake of a National Association of Realtors report that total existing-home sales slipped 0.9 percent to a seasonally adjusted annual rate of 4.59 million in February.

Housing helped throw the economy into its recession and remains a major headwind to recovery.

Meanwhile, the Bush tax cuts are set to expire at the end of 2012, an election year that is sure to bring uncertainty to the economy.

"We’ve seen this story in 2010 and 2011, where it looks pretty good in the first half and then we have to change our tune in the second half," says Robert Tipp, the chief investment strategist in Newark, N.J., at Prudential Financial, which oversees $300 billion in bonds, according to Bloomberg.

Some Federal Reserve officials have suggested a need to give the economy time to heal on its own without more Federal Reserve intervention.

"Once inflation gets out of control, it takes a long, long time to fix it," Federal Reserve Bank of St. Louis President James Bullard tells Bloomberg Television.

Other Fed policy makers confirm the Fed has not yet decided on the issue of easing, always a hot-button topic.

"Nothing has been decided," says New York Fed President William Dudley, a close ally of Chairman Ben Bernanke, according to Reuters.

"It all depends on how the economy evolves," Dudley says, adding "it's about costs and benefits, and if we get to a point where we think the benefits of another program of QE outweigh the costs, then we'll certainly do so."

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

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