Thursday, May 24, 2012

Will the Fed Ease Monetary Policy at Their June Meeting?

The Fed's monetary policy setting arm, the FOMC, is scheduled to meet on June 19-20.

 The very well connected Bill Gross at PIMCO and Jan Hatzius at Goldman Sachs are already on record stating that they expect more Fed easing after the meeting.

But in an interview with CNBC, NY Fed president Bill Dudley says easing is not likely.

“My view is that, if we continue to see improvement in the economy, in terms of using up the slack in available resources, then I think it's hard to argue that we absolutely must do something more in terms of the monetary policy front,” Dudley said.

“What's changed for me…is that I'm a little bit more confident that the economy's going to keep growing,” he said. “I'm a little bit less worried about a Japanese-style deflation outcome. And that was really the reason that, for me personally, motivated the need for further monetary policy action.”

So what gives?

Nouriel Roubini, who clearly has not studied the Mises brothers on the difference between case and class probabilities but who is, nevertheless, very well connected, tweets:
I still say 60/40 @PIMCO: Gross: Fed’s Dudley less dovish. QEIII now. Depends on Euroland, inflation & jobs. 50/50.
With Gross, Hatzius and Roubini leaning toward more easing and Dudley not, is this an indication that Bernanke is keeping Dudley somewhat out of the loop?  G, H and R usually don't step out unless they know something.


  1. Prediction: If the DOW is down >15% from its May 1, 2012 high on the day of the announcement, they will implement more easing. If it's down <15%, they will hold off until the next meeting.

  2. We will not see overt QE until early 2013 unless we have a MAJOR financial event. The FED is playing a waiting game. They are allowing other countries to monetize first and thereby bolster the USD.

  3. Sometimes, when I think of the Fed easing the money supply, I imagine an extremely excited dog panting excessively, and then deciding to relax a little bit.

    But unfortunately that's the opposite of how the Fed works.