I showed you the Jan Hatzius clip just a few minutes ago where Hatzius says he expects operation twist at the Fed due to a stalled US economy.
David Rosenberg was also on Bloomberg and sees operation twist too. But he also says he doesn’t see how the Fed could prevent a US recession. His view is that the recession is already baked in. He goes further and says that Ben Bernanke is ‘always aggressive but never early’ meaning Bernanke will get the fed to do something – but it will be small beer until the economy collapses.
This is my view as well. The Fed has already begun its third easing campaign but they are not making asset purchases. But they will do in due course.
the Fed is already feeling political heat from its previous policy actions, so it will allow the economy to slip before it embarks on the next round of asset purchases. Therefore, if and when the next recession hits, debt deflation will take hold. The calls for stimulus will be deafening. And because the Fed will have resisted more aggressive prior action, the Fed will then be forced to be extremely aggressive in its policy response. That is when expanding the balance sheet will be a go and the Fed won’t just buy Treasuries, but a lot of other assets too.
Video clip of Rosenberg below