From Capital Economics comes its latest Monetary Indicators Monitor report, which forecasts an additional $US400 billion of asset purchases (quantitative easing) by the Federal Reserve between now and mid-2014 even if it begins to “taper” (wind-back) its asset purchase program:
Regardless of whether the Fed opts to reduce its monthly asset purchases or not this month, the size of the monetary base will continue to rise in line with the Fed’s asset holdings. Both could reach $4 trillion dollars by the time the Fed stops its asset purchases in mid-2014. We expect the Fed to begin its taper this Wednesday, but that would still mean it will purchase an additional $400bn between now and mid-2014. A delayed taper could push that total up to $450bn.
The growth rate of bank loans has slowed recently, even though bank deposits continue to expand at a rapid clip. Bank deposits now far exceed the value of outstanding loans (Chart 4.).
On the asset side of commercial banks’ balance sheets, reserve balances held at the Fed show up as cash assets (Chart 5.).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
