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How big is Quantitative Easing in the US going to be?
• ... We now view the Fed as following a looser version of the “threshold rule” championed by Chicago Fed President Charles Evans.
• What are the thresholds? We read the committee as signaling that the federal funds rate will not rise until the unemployment rate has fallen to the 6½%-7% range. The corresponding threshold for the end of QE3 may be in the 7%-7½% range.
•These implicit commitments are undoubtedly subject to an inflation ceiling ... may be a year-on-year core PCE reading of 2½%-2¾%.
(...) Under the committee’s economic forecasts, we estimate that the funds rate would stay near zero until mid-2015, while QE3 would run through mid-2014 and total $1.2trn.
• Under our own economic forecasts, we estimate that the funds rate would stay near zero until mid-2016, while QE3 would run through mid-2015 and total just under $2trn.
