Dealers See Fed Buying $545B Mortgage Bonds

[liberty2897]

Another $800 billion...

http://www.bloomberg.com/news/2011-11-27/bond-dealers-see-fed-buying-545-billion-of-home-loan-debt-in-third-easing.html


The company forecasts the Fed will buy $800 billion of securities, which may include Treasuries.
Efforts to bolster the economy are taking on new urgency with $1.2 trillion in automatic government spending cuts slated to begin in 2013. The Commerce Department said last week that gross domestic product expanded at a 2 percent annual rate in the third quarter, less than the 2.5 percent it originally projected, and Europe’s worsening debt crisis threatens to further curb global growth.
The Fed is taking the view that “even if U.S. fundamentals look to be relatively OK, we’ve got to keep our eye on any contagion from the European stresses,” Dominic Konstam, head of interest-rate strategy at the primary dealer Deutsche Bank AG in New York, said in a Nov. 22 telephone interview. “It’s in that context that they’re willing to do more.”

[Zippyjuan]

Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the firms that provided estimates.

I doubt the Fed will do anything "startitng next quarter". Two reasons for why I believe this. One is that the potential budget cuts are more than a year away and a lot can happen between now and then- congress is already trying to look at ways to avoid them. For the Fed to take action now based on what may happen then is extremely premature.

Second is that the Fed always anounces fairly well ahead of anything what actions they intend to take in the future so that the economic markets (mostly the financial markets) can plan for and react to them instead of being surprised and shocking the market which can cause an over-reaction. At their most recent Open Market Committee (the ones who would decide on any purchasing program), they indicated they were not going to do anything different than what they were already doing (meeting was November 2nd).
http://www.federalreserve.gov/newsevents/press/monetary/20111102a.htm

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Now one thing which they are doing is to take their maturing mortgage backed securities and using that revenue to purchase some new mortgage backed securities and doing the same thing with their Treasury holdings. These are neutral- with the value of their holdings of both remaining the same and not changing. This neither adds nor subtracts any money to or from the economy.