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Fed's Williams: QE3 to likely top $600 billion
IRVINE, Calif. |
IRVINE, Calif. Nov 5 (Reuters) - The U.S. Federal Reserve's latest round of asset purchases will probably top $600 billion, surpassing its second round of bond-buying, as the central bank continues to buy assets until the labor market improves, a top Fed official said on Monday.
The effect of the Fed's asset purchases on the economy will depend on how much market participants think the central bank will ultimately buy, something the Fed itself does not know, John Williams, president of the San Francisco Federal Reserve Bank, told reporters after a lecture at the University of California, Irvine.
But given the state of the labor market and the pace at which it is improving, the Fed will likely need to keep buying assets "well into next year," he said. The Fed will want to see sustained jobs gains and a consistent drop in the unemployment rate before it stops buying assets, he said.
The Fed began its third round of asset purchases, known as QE3, in September, beginning with $40 billion a month in mortgage-backed securities and promising to continue or expand the purchases if the labor market does not improve substantially.
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Although the two programs are similar nevertheless there are differences.
The OMT will be put in place only under the acceptance by the beneficiaries countries of certain financial conditions and without any pre-fixed amount of bonds purchase. Instead the QE3 runs automatically and with a monthly established amount of bonds purchase ( $ 40 bl ).
The QE3 injects a great amount of liquidity in the financial system thus raising inflation expectations. On the contrary the action of the ECB is neutral as far the inflationary expectations are concerned. In fact the effects of the OMT program are completely sterilised by withdrawing equivalent amounts of liquidity from the banking system.
Last but not the least, the FED through the QE3 program buys mainly the long end of the mortgage back securities curve while the ECB only short dated sovereign debt securities.
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