Published: Thursday June 21, 2012 MYT 10:58:00 AM
CIMB Research sees US Fed keeping door open for QE3
KUALA LUMPUR: CIMB Economics Research believes the US Federal Reserve will keep the door open for quantitative easing "3" (QE3) should US growth prospects take a turn for the worse.
It said on Thursday the Fed had continued to signal that all policy options were possible due to heightened global hazards emanating from Europe and domestic fiscal restraints.
The Fed, had at its two-day meeting which ended Wednesday, kept its pledge to leave interest rates at near zero until at least late 2014.
The Fed also extended its maturity extension programme termed as "operation twist", which was first announced in Sep 2011 and is due to expire this month, until the end of this year. However, the size of the programme will be smaller at US$267bil (US$400bil in the first round).
CIMB Research pointed out that the Fed acknowledged that concerns over the US economic recovery have risen in recent weeks, crushing earlier optimism about a stronger outlook in the second half of 2012.
Among the factors were the weaker high-frequency economic data in the US, including job growth and industrial production.
CIMB Economics Research noted that financial conditions were supportive of growth and the housing market recovery that started in the fourth quarter of 2011 was continuing.
Other factors in the US were renewed risks emerging in the eurozone and also the prospect of fiscal tightening in 2013 once the fiscal stimulus measures expire.
The Fed also lowered the US economic growth outlook to 1.9%-2.4% for this year (versus 2.4%-2.9% estimated in April) and 2.2-2.8% for 2013 (versus 2.7%-3.1% estimated in April).
"We think that our GDP growth estimates (for the US) of 1.5%-2.0% for this year and 2.0%-2.5% for 2013 are still achievable though next year's outlook does hinge on the election and fiscal policy outcome in November-December," said CIMB Economics Research.