In a note to clients, the Goldman economist wrote the following:
BOTTOM LINE: We now look for the FOMC to announce a lengthening in the average maturity of its balance sheet at the September 20-21 meeting.
1. Following today’s worse-than-expected jobs report, we now look for the FOMC to announce a lengthening of the average maturity of the Fed’s balance sheet at the September 20-21 meeting, with sales of relatively short-dated Treasuries and purchases of relatively long-dated Treasuries.
While such a measure would differ from the first two rounds of quantitative easing – in that the Federal would not be expanding the size of its balance sheet this time – the fact that the Fed would be purchasing Treasuries is likely to cause many investors and economists to label this move as QE3.
Moreover, such a decision by the Fed could establish a precedent for further easing, such as outright Treasury purchases similar in nature to that of QE1 and QE2, which would certainly qualify as QE3.