Quantitative easing II

WASHINGTON (MNI) – Nomura Friday became the first major firm to formally anticipate a change in Fed
policy as soon as August 10 to alter course toward some renewed quantitative easing, arguing that without the
change, Fed policy is becoming less accommodative week by week.

“We think there will be something in the (FOMC) language that maybe reverts back to the language of 2009, around
the first time they made this statement, that the Federal Reserve needs to maintain an expanded balance sheet,”
David Resler, chief North American economist for Normura, told Market News International.

“That begs the question, what does that mean to expand,” he continued. “We don’t think they will actively buy
things,” he said, but that they will have to “back up their language.”

While the Fed now is committed “only to rolling over guvvies,” he said, “they are becoming less accommodative each
week. Mortgages are not being replaced” and other shrinkage is taking place.

“They need to have a strategy for preserving (the balance sheet’s) size. Does that mean they will reinvest paydowns.
I don’t know, and we’re agnostic on how they will do it.”

Just lowering rates “is not on the table any more,” he said, and changing the rate of interest on excess reserves “is
the last option they would resort to.” At present “they are losing assets, so I think they would not want to lose them.”

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