Fed chair may lay groundwork for QE3 at House hearing: Capital Economics

The prediction from economists Paul Ashworth and Paul Dales comes after the Federal Reserve announced plans to keep the federal funds rate low through 2014. “The Fed’s new interest rate projections ended up having only a modest impact on market expectations last week,” Capital Economics said. “Indeed, the impact was smaller than we might have expected based on the pledge in the accompanying statement alone. In the end the Fed didn’t take the opportunity to introduce a third round of quantitative easing last week, but the FOMC statement and the Fed chairman’s comments certainly didn’t rule out the possibility in the near future.” In early November, Fed Chairman Ben Bernanke said the central bank would consider buying more mortgage-backed securities to help stabilize the economy and the troubled housing sector. “If Bernanke is seriously contemplating introducing QE3 soon then we would expect him to start building the case for action at his testimony to the House Budget Committee,” Ashworth and Dales said. The Fed chairman is set to appear on Capitol Hill Thursday. Capital Economics is not alone in its forecast. French investment bank Société Générale forecast the possibility of a new program being announced as early as this month. The bank said buying and selling could begin as early as March. Write to Kerri Panchuk.