The Federal Reserve will amplify record accommodation tomorrow by announcing $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.
Forty-eight of 49 economists predict the Federal Open Market Committee will purchase Treasuries to bolster an existing program to buy $40 billion in mortgage bonds each month. The panel pledged in October to continue that plan until the labor market improves “substantially.”
“It’s going to be massive and open-ended in size,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York and a former New York Fed economist.
Chairman Ben S. Bernanke and his FOMC colleagues will press on with purchases at least through the first quarter of 2014, according to the median estimate in the Dec. 7-10 survey. They are expanding the balance sheet beyond $2.86 trillion in a bid to spur growth and lower an unemployment rate of 7.7 percent.
“They view this stimulus as what’s needed to sustain the economy” and reinforce improvements in industries such as autos and housing, said John Silvia, chief economist at Wells Fargo & Co., the biggest U.S. home lender.
Stocks rose today, with the Standard & Poor’s 500 Index erasing its decline since Election Day, as investors speculated progress was being made in U.S. budget talks. The S&P 500 climbed 0.8 percent to 1,430.36, the highest since Oct. 22, at 11:02 a.m. in New York. The yield on the 10-year Treasury note climbed to 1.65 percent from 1.62 percent yesterday.
The FOMC began a two-day meeting in Washington at 11 a.m. The committee plans to release a statement on policy tomorrow at around 12:30 p.m. That will be followed by forecasts for growth, unemployment and inflation. Bernanke is scheduled to hold a press conference at 2:15 p.m., after release of the forecasts.
The central bank this month is scheduled to end Operation Twist, in which it swaps $45 billion of short-term Treasuries each month for longer-term government debt. That program kept the total size of the balance sheet unchanged, while new Treasury purchases would expand it.
The Fed’s latest round of quantitative easing will total $1.1 trillion, with about $620 billion in mortgage-backed securities and $500 billion in Treasuries, according to the median estimate in the survey.