Roubini: No QE3 Announcement At Jackson Hole, But QE3 Will Happen

Aug. 26, 2011 2:34 AM ET23 Comments
Edward Harrison profile picture
Edward Harrison

Nouriel Roubini spoke to CNBC Thursday about the Speech that Federal Reserve Chairman Ben Bernanke will deliver Friday. Nouriel Roubini does not expect Bernanke to announce QE3 in this speech. However, he does expect QE3 at some point in the future because the economy is so weak.

My view is similar. However, I would make two key points. The Fed has already begun its third easing campaign. Fed doves have wanted some sort of easing. Fed hawks want no part of this. Moreover, Ben Bernanke knows darn well the Fed has spent its political capital. Rick Perry's comments about Bernanke’s committing 'treason' if the Fed did QE3 demonstrate what kind of political environment in which the Fed operates. So the doves have been forced to alter QE3. This campaign will be all about the easing and not at all about the quantitative. Expanding the balance sheet via asset purchases – a.k.a. printing money – is toxic monetary policy, treasonous, if you will. That kind of easing is history – unless recession and debt deflation is all around us.

The Fed is likely to soft peddle this policy change… so the Fed could start off by signalling to the market that it will conduct what I have been calling 'permanent zero'. Eventually people will be forced to accept this – and the term structure will flatten further and further out the curve.

-Gross and Rosenberg: QE3 will see interest rate caps

This is what is happening right now.

Second, the Fed is already feeling political heat from its previous policy actions, so it will allow the economy to slip before it embarks on the next round of asset purchases. Therefore, if and when the next recession hits, debt deflation will take hold. The calls for stimulus will be deafening. And because the Fed will have resisted more

This article was written by

Edward Harrison profile picture
Edward Harrison is a banking and finance specialist at the economic consultancy Global Macro Advisors focusing on global economics and corporate strategy. Previously, he was a partner at the consultancy Lion Strategy Advisors, and worked in various consulting, strategy and M&A roles at Deutsche Bank, Bain Consulting, the Corporate Executive Board and Yahoo. Mr. Harrison started his career as a diplomat in the foreign service. He speaks German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. He holds an MBA from Columbia Business School and completed his undergraduate studies with a degree in economics from Dartmouth College.

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