Pacific Investment Management Co.’s Neel Kashkari said the Federal Reserve is likely to start a third round of quantitative easing, but BlackRock’s Robert Doll said the central bank will wait to see whether the economy weakens more.
“The economy is slowing,” Mr. Kashkari, who heads global equities at PIMCO, said Thursday at the Bloomberg Asset Management Summit in Boston. Worsening unemployment, lower equity prices and the risk of shocks coming out of the eurozone suggest the Fed will act, he said.
Mr. Doll, who plans to retire as BlackRock’s senior managing director and chief equity strategist, said regulators would have to see significantly weaker economic growth or a “bust in the euro” before they act to stimulate the economy with another round of bond purchases. “QE3 is for an emergency,” Mr. Doll said Thursday. “The Fed wants us to know there is an insurance policy if we need it.”
The U.S. financial crisis four years ago spurred the Fed to revive the economy by purchasing $2.3 trillion of bonds from December 2008 to June 2011 in two rounds of a tactic called quantitative easing. The Fed is scheduled to buy as much as $2.25 billion of Treasuries on Thursday due from February 2036 to May 2042 as part of Operation Twist, a program to replace $400 billion of shorter-term securities in its holdings with longer-term bonds through this month to keep borrowing costs down.
The crisis in Europe will weigh on U.S. policymakers’ decision to further stimulate the economy, Mr. Kashkari said. It will take “years, not months” to solve as Greece exits from the eurozone, he added.
Greece’s exit might not necessarily happen next week, after the country’s elections, and the outcome for markets will greatly depend on how orderly the process is, according to Mr. Kashkari.