Tagged: Lower for longer

Fed May `Ease’ Policy at Next Meeting Aug. 10, Primary Dealer Nomura Says

Bloomberg | Jul 31, 2010 | 2:29 AM GMT+0530

Nomura Holdings Inc., one of the 18 primary dealers that trade with the Federal Reserve, said policy makers will “ease” at their Aug. 10 meeting, though what form it takes is debatable. Central bankers may change the language of their policy statement to signal that the Fed’s balance sheet will remain expanded and change policy on the mortgage program to start reinvesting paydowns, the firm said in a note to clients today. There is also a chance of other actions, such as a cut in the rate on excess reserves, Nomura’s global economics team said. Nomura changed its viewpoint because of a softening of the comments from policy makers such as Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard. The firm also cited the Fed’s downward revision for growth and the slack in the economy that threatens to push inflation to an unacceptably low level for Fed Chairman Ben S. Bernanke.

“Easing is going to be very seriously considered given several months of disappointing data and the very dovish tone of public commentary across the spectrum,” said Zach Pandl, an economist at Nomura Securities International in New York. “If the Fed is averse to buying more assets, then cutting the rates of interest on reserves could be the next option.” Bullard said yesterday that the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.

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