NEW YORK The Federal Reserve is preparing a fresh round of quantitative easing measures to battle lackluster economic performance, hedge fund advisor Medley Global Advisors said in a report on Tuesday, a market source told Reuters.
"Fed leadership has all but run out of patience with economic data it believes is not propelling the U.S. recovery sufficiently to dent the unemployment rate. The FOMC will work through the next couple of weeks to prepare additional easing measures to announce at the end of its November 2-3 meeting," the source said, reading directly from the report.
"The decision will bring an end to market speculation about QE, or QE2 as it has become known. Policy makers are no longer willing to wait for the pace to pick up unaided. Unemployment is just too high," the report said, according to the source.
The Federal Open Market Committee is the U.S. central bank's monetary policy-setting body. It next meets for two days on November 2-3. Investors have been on edge over talk of a second round of quantitative easing, parsing both economic data and market chatter because of the potential wide-ranging impact.
"The dollar definitely was hit by the report, but I think it was more a compounding of the selling we saw from the pretty bad consumer (confidence) report," said the source.
"Investors are very sensitive to the data looking for any clues on whether QE2 is something the Fed is going to bring back," the source said.
In midday trade, the U.S. dollar was down 0.5 percent to 83.84 yen. The euro climbed 0.91 percent to $1.3576.
U.S. consumer confidence fell in September to its lowest since February, underscoring lingering worries about the strength of the economic recovery. Home prices also fell, the S&P/Case Shiller composite index of 20 metropolitan areas showed.
The Fed last week said it was prepared to put more money into the economy if needed to stimulate the recovery and avoid deflation.
To battle the financial crisis, the Fed has already bought $1.7 trillion of longer-term Treasury and mortgage-related bonds, supplementing its pledge to keep benchmark U.S. interest rates near zero for a long time.
Medley spokeswoman Hannah Little would neither confirm nor deny the firm had issued the 1-1/2-page report, entitled "Fed: Bait and Switch", citing the firm's subscription policy.
(Editing by James Dalgleish)