Marc Faber: Fed Might Hike QE to $1 Trillion a Month

Monday, 21 Oct 2013 10:34 AM

By Michael Kling

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The Federal Reserve will increase its monthly bond purchases not decrease them, says Marc Faber, publisher of the Gloom, Boom & Doom Report.

"The question is not tapering. The question is at what point will they increase the asset purchases to say $150 [billion], $200 [billion], a trillion dollars a month," Faber told CNBC.

The Fed is now buying $85 billion of Treasury and mortgage bonds a month in what's known as quantitative easing (QE).

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

When the Fed first started buying long-term bonds, in what was called QE1, it initially said the program would last six months. But it started another round of assets purchases, and then another, without setting a firm ending dated. That's why the latest reiteration of the program is called QE Infinity.

"Look, every government program that is introduced under urgency and as a temporary measure is always permanent," Faber explained. "The Fed has boxed itself into a position where there is no exit strategy."

The continuing QE is counterproductive, he noted, stating benefits flow only to a limited number of people.

Although inflation continues to remain subdued, Faber sees "a colossal asset bubble" as well as a debt bubble.

"The quantitative easing is wind at the back of the economy," he told CNBC. "But when they unwind the quantitative easing, which they will ultimately have to do, it will be wind in the face of the economy. And then it won't be so much fun."

While few believe the Fed will increase QE or make it permanent, more experts are predicting the central bank will maintain its current level of bond purchases into next year because of growth disruptions caused by the government shutdown.

A Bloomberg News survey of 40 economists indicated the Fed will decide to reduce its purchases to $70 billion a month in March, to $25 billion by July and end the purchases in October 2014.

The shutdown cut economic growth by 0.3 percentage points in the fourth quarter, the economists said. It also suspended data collection the Fed uses to set policies.

"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, an economist at BNP Paribas SA, 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)

Related Stories:

AEI's Makin: Here Comes QE4!

Saxo Bank's Jakobsen: Fed Will Have to Boost QE Next Year

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