The U.S. Federal Reserve today (Wednesday) is all but certain to announce a second round of quantitative easing – "QE2."
Most analysts believe the Fed will pledge to buy another $500 billion in U.S. Treasuries, but I think it will go even further. My expectation is that $500 billion in Treasury purchases over six months will be just a first step, and that the full amount contemplated – as much as $2 trillion – is much larger than consensus.
This view is based on an analysis by Goldman Sachs Group Inc. (NYSE: GS) chief domestic economist Jan Hatzius that suggests current interest rates, at 0% to 0.25%, are 700 basis points too high. In plain English, the Goldman analysis suggests that interest rates would have to be -7% to achieve the Fed's goals.