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Fed's Bullard suggests QE3 end should be delayed - BTMU

FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ notes that from St Louis Fed President Bullard said on Thursday that the end of the central bank's QE3 program shouldn't be ended at the next monetary policy meeting.

Key quotes

"The big event from yesterday’s trading session was of course the comment from St Louis Fed President Bullard who suggested the Fed should consider delaying the end of QE3 when it meets on 28th-29th October. The comment helped reverse renewed dollar gains after Wednesday’s sell-off while 10-year US Treasury yields moved higher and the equity markets stabilised."

"While the comment is certainly notable it remains questionable whether Bullard’s view implies a real chance of a delay being agreed. Of course a lot depends on how the markets are behaving in the days of the meeting but Bullard’s views on the economy and policy are at the very least best described as “fluid”! I’ve seen this morning a description of Bullard as an “arch hawk” – we disagree with that description."

"Bullard is best described as sitting more centrally with a tendency to swing from hawk to dove and back again. He went from hawk to then earlier this year shifting to a more dovish stance due to concerns over inflation."

"Then as recently as 3rd October he argued that the Fed had shown considerable patience already in not raising rates and repeated that rates should be raised in Q1 2015. Indeed, while suggesting a QE delay yesterday Bullard was not willing to change his view on a Q1 2015 rate increase."

"So we’re not convinced that Bullard is indicative of FOMC thinking and believe the FOMC will at this stage still be leaning for a QE3 end later this month. Of course, the meeting is still just under two weeks away, so a lot will depend on financial market developments between now and then."

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