"QE3 may be coming after all."
That opening line from a new CNBC article says it all: experts are now predicting that the country's economic woes will likely be used to justify a new round of quantitative easing (which is essentially the government printing money to buy its own bonds). It would be the third round in recent memory, hence the name QE3.
"In a dramatic turnabout, market participants now believe the Federal Reserve is more likely than not to resume purchasing assets during the next year in a third round of quantitative easing," CNBC says regarding its August Fed Survey.
"There is no doubt that over the last week the odds of seeing another round of asset purchases has risen significantly," Tom Porcelli, chief US economist at RBC Capital Markets, told CNBC. "This doesn’t mean we think it will have any more success than QE2. What this simply reflects is a Fed with few remaining options."
The survey polled 60 different economists, stock and bond strategists, and portfolio managers.
Besides predicting another round of quantitative easing, the respondents also overwhelmingly disagreed with S&P's downgrade of the United States' credit rating.
"Fully 70 percent of market participants gave the US the top Triple-A rating, a higher percentage than France and the UK, which are rated Triple-A," CNBC reports.
Some of the survey's other findings:
- Participants believe there is now a one-in-three chance that the US enters recession in the next 12 months.
- The outlook for the federal funds rate—which the Fed uses to influence other short-term interest rates—was lowered to just 0.25 percent by the end of next year, down from a one percent forecast in the July survey.
- Stocks will rise strongly from the current low levels, but are not seen regaining the highs of this year anytime soon.
- 57% say the bigger threat to the US is cutting government spending too quickly rather than not getting the deficit under control quickly enough.
If you'd like to better understand quantitative easing, CNBC has put together a short tutorial video below: