While Goldman and the rest of the market expect QE 2 to be announced in either November or December, perennial optimist Morgan Stanley is out with a research piece which argues that it might not happen during 2010. Why? Because Morgan believes future economic data will surprise to the upside, particularly Q3 GDP which the firm expects to come in at 2.6%. Furthermore, the firm postulates that more QE will not do much to improve the economy. According to their econometric models, a "$2 trillion asset purchase program would: 1) lower Treasury yields by 50bp; 2) increase GDP growth by 0.3pp in 2011 and 0.4pp in 2012; and 3) lower the unemployment rate by 0.3pp by the end of 2011 and 0.5pp by the end of 2012." If Morgan is right there is very little reason for the Fed to initiate a new QE program. It would not materially effect the real economy and would only send gold and other commodities higher.
Eve though Morgan Stanley thinks the chances are low of more QE, they believe the trigger for any new announcement would be an indication that US GDP growth is trending below 2% for an extended period of time.
From Morgan Stanley:
Eve though Morgan Stanley thinks the chances are low of more QE, they believe the trigger for any new announcement would be an indication that US GDP growth is trending below 2% for an extended period of time.
From Morgan Stanley:
