Market Preview: Keep Those QE3 Hopes in Check
NEW YORK (TheStreet) -- Those holding out for QE3 next month may be disappointed but such is the trade-off when the economic data improves.
On the heels of July's decent jobs report and the retail sales rebound along with other promising data points, the case for urgency when it comes to more accommodation from the Federal Reserve takes a hit.
Hatzius now expects Ben Bernanke & Co. won't sign off on expanding the central bank's balance sheet until late 2012/early 2013.
"To be clear, our own view remains that there is a very solid case for additional accommodation under the Fed's dual mandate of maximum employment and 2% inflation," he said. "And we do believe that Fed officials will ultimately decide to ease policy further."
Hatzius also said other factors aside from the economic data have recently "swung against the expectation of aggressive near-term easing."
"The inflation outlook has become a bit cloudier in the wake of the recent recovery in commodity prices; while Tuesday's upside surprise on producer prices was largely driven by volatile sectors such as vehicles and tobacco, underlying price pressures were also a touch firmer than we had expected," he said. "Moreover, our GS financial conditions index has now fully unwound the tightening seen in the second quarter, and we have found previously that the meeting-by-meeting probability of Fed easing is quite sensitive to financial conditions."
The situation could change quickly though, Hatzius acknowledges, especially after the recent chatter from Fed officials about the possibility of a bond-buying program based on certain economic goals being met, rather than being relegated to a set amount, i.e. $600 billion in bond purchases over six months.