8 Top Wall Street Economists Preview Today's FOMC Meeting

In just a few hours, the Federal Reserve led by Chairman Ben Bernanke will conclude its Federal Open Market Committee meeting and publish is decision on monetary policy.

The sentiment on Wall Street seems to be biased toward a major announcement of additional stimulus measures in the form of balance sheet expansion (QE3) or yield curve flattening (Operation Twist).

Economists are largely split on what the FOMC will announce.  Some expect no new easing policy at all.

Goldman Sachs expects quantitative easing

Goldman Sachs chief economist Jan Hatzius sees new Fed easing coming Wednesday, writing:

We expect the Federal Open Market Committee (FOMC) to ease monetary policy at next week’s scheduled meeting.  Our baseline is a new asset purchase program that involves an expansion of the balance sheet, but an extension of Operation Twist and/or a further lengthening of the short-term interest rate guidance in the FOMC statement beyond the current “late 2014” formulation are also possible.

Source: Goldman Sachs

SocGen expects QE3 in the form of $600 billion of MBS and Treasuries purchases

Société Générale economist Michala Marcussen quantified the size of the balance sheet expansion in a Monday note:

With economic data signalling stall speed growth for the US, we expect the Fed to lower its current 2012 growth outlook from 2.7%, narrowing the gap to our own forecast of 1.8%. This – and the risks from the euro area debt crisis – will allow the Fed to adopt QE3 at the June 20 FOMC. We estimate the Fed could extend twist by another $150bn, but our expectation is that the Fed will instead allow its balance sheet to expand a further $600bn, with purchases split 40/60% between MBS and Treasuries.

Source: Société Générale

JP Morgan sees a 75% chance of extension of zero interest rates and more Twist

JP Morgan chief US economist Michael Feroli wrote Friday that he sees a 75 percent chance of an extension of Operation Twist and an extension of zero interest rate expectations:

We see two actions as most likely next week: a change in communications to push back guidance of the path of the fed funds rate, and an extension of Operation Twist. We think there is about a three-in-four chance of the FOMC agreeing to each of these actions.

Source: JP Morgan

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