Tags: Ashworth | Fed | QE | QEternity

Economist Ashworth: Fed May Implement 'QEternity'

Monday, 28 Oct 2013 08:08 AM

By Dan Weil

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With the economy looking sluggish and fiscal uncertainty reigning in Washington, most economists think the Federal Reserve won't start tapering its quantitative easing (QE) until at least March.

But some believe that timing is too optimistic.

"There is a danger that the Fed has missed its window of opportunity. If it's waiting for some degree of fiscal certainty, this really could turn into QEternity," Paul Ashworth, chief North American economist at Capital Economics, wrote in a report obtained by CNBC.

Editor’s Note:
Obama Donor Banned This Message (Shocking)

"With the potential costs of the asset purchases steadily rising, there may come a time when the Fed is forced to begin curbing its asset purchases against a backdrop of a still misfiring economy or fiscal uncertainty," he added.

The economy grew 2.5 percent in the second quarter, but in the wake of the government shutdown, it's likely expanding much more slowly now.

"We're still flirting with recession," economist Michael Pento told CNBC, noting that the Fed's stimulus hasn't been effective in jumpstarting the economy, but that the central bank will keep trying.

Therefore, QE will continue much longer than investors anticipate, Pento stated.

"It's QE for a very, very long time and even longer than that."

The lack of economic statistics available because of the government shutdown makes the Fed's job more difficult, economists say.

"It's going to be harder to extract the signal from the data, and the Fed's policies are tied to the data," Laura Rosner, a U.S. economist at BNP Paribas, told Bloomberg.

"They're waiting for more confirmation the economy is moving in the direction of their outlook, and if we don't have data or it's inconclusive, then the Fed isn't going to feel confident enough in the outlook."

Editor’s Note: Obama Donor Banned This Message (Shocking)

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