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In an unprecedented and controversial move, the Federal Reserve today announced the initiation of an open-ended round of Quantitative Easing (QE3) and extended the period for which it will keep rates between 0 and 1/4% to mid-2015. Here is the paragraph from the FOMC statement that sums it up: "....The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions...should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative." Translating from Fed-...

Guessing whether the Federal Reserve will undertake another round of quantitative easing has become a popular parlor game on Wall Street. As could be expected, ahead of the Fed's Tuesday policy meeting, chatter has been renewed over whether the central bank should and could institute another round of QE to help the economy and keep its two mandates, high inflation and unemployment, at bay. Despite a more stable economy in recent months, the word last week was that the Fed is considering another potential long-term bond buying program called "sterilized QE." This program would be similar to QE2, except this time, the Fed would restrict how banks can use the funds earned from the sale of the securities. Markets loved the idea, since with each round of additional easing, asset prices have jumped. Lance Roberts, CEO of Streettalk Advisors, compares the Fed to a "drug dealer" for Wall Street -- he says Fed Chairman Ben Bernanke took on a third unofficial mandate ...

Update: yup. It's Jon "Mouthpiece" Hilsenrath all right. This is nothing but a test to gauge if the market will ramp on the clarification that future QE may be sterilized. If market ramps regardless, the sterilized clause will be ultimately eliminated. Full story link . Original: While we have yet to see the actual report, almost certainly emanating from Jon Hilsenrath, it appears that the QE3 rumormill has started, initially with speculation that the Fed's activity will be merely "sterilized" or more Twist-type purchases, unclear however if in TSYs or also in MBS. Via the WSJ: Fed Officials consider "sterilized" option for Future bond buying Operation Twist Reprise, QE Other Options For Fed Bond Still Unclear Whether Fed Will Launch Another Bond-Buy As a reminder, yesterday we said that according to the EURUSD, the implied market expectation is for a $750 billion QE out of the Fed . However, that is for unsterilized balanc...

At JSMineset.com , one commentator offers a pithy summary of this week’s long-term refinancing operation (LTRO) measures from the European Central Bank: “Today the ECB provided a nearly half trillion euro loan to European banks. More than 500 European banks took this 3 year loan at 1% interest. The ECB plans to do another 3 year loan offer early next year (maybe February). In exchange, banks are supposed to buy Sovereign Debt from European countries. Banks can pocket the huge differential in interest! What a Christmas present! Jim, you said it first. Western governments are into QE to infinity!” Given European banks deleveraging needs, however, sovereign bonds may not receive the bids that some had hoped. Reuters notes that bank analysts expect no more than €100 billion of these loans to be used to purchase more sovereign debt from the likes of Italy and Spain . Morgan Stanley estimates some €20-50 billion euros of Italian bonds could be bought. To put this in cont...

SocGen has released its much anticipated Multi Asset Portfolio Scenario/Strategy guide titled simply enough "Patience: bad news will become good news" where, as the insightful can guess, the French bank makes the simple case that the worse things get, the stronger the response by global central banks will be. Here is the key quote for those worried that : "A major liquidity crisis should not occur this time, as we think we are on the eve of major QE in the UK, US and (a bit) later on in the EZ." We don't disagree and if there is anything that can send BAC higher it will be the announcement of QE3. Of course, BAC will first drop to a $2-3 handle so question is who has the balance sheet to hold on to the falling knife. The next question is "How big will QE3 be"? Well, according to SocGen, the Fed will preannounce it in the January 2012 FOMC statement, the monetization will last from March 2012 until the end of the year, and will buy a total of $600 billi...