Art Cashin: Don’t Rule Out QE2.5

“In his daily letter, UBS floor guy Art Cashin looks the prospect of more Fed easing (of some sort) after QE2 officially ends this summer.

QE2 To End? Don’t Rule Out QE 2.5 – The dollar rally is being attributed in no small part to the anticipated end of QE2.

The thesis is that when QE2 ends, the Fed will remain a buyer of U.S. Treasuries but on a somewhat smaller scale. That, it is thought, may allow yields on Treasuries to snug up a bit and that might help the dollar.

The QE2 “enders” cite the speeches by several Fedheads, fretting aloud about latent inflation (although dissenting votes have been quite rare).

But, there’s a silent vote that seems to suggest QE2 may need to be extended. It’s not a Fed President or Governor. It’s the Taylor Rule.

As you may recall, John B. Taylor, in 1993 wrote a paper in which he outlined what became known as the Taylor Rule. The “rule” sets out a monetary policy that suggests how the Fed should adjust rates to meet changing conditions in inflation, GDP and the like.”

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