“Pacific Investment Management Co.’s Mohamed El-Erian said the Federal Reserve will expand its bond purchases to include Treasurys by early next year.
The central bank in its December or January Federal Open Market Committee meeting will announce plans to add Treasury purchases to the $40 billion in mortgage-backed securities it is now buying in its third round of quantitative easing, known as QE3, El-Erian, chief executive officer of the world’s biggest manager of bond funds, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. The Fed will also take additional steps to improve transparency in communication of the path of monetary policy, he said.
The Fed may continue in January with the Treasury purchases that are now part of the central bank’s maturity extension program, known as Operation Twist, discontinue the sales, or let the program end and add Treasuries to its QE3 purchases, according to El-Erian. The Fed is buying $45 billion in long- term debt each month as part of Twist. The program is slated to end on Dec. 31.
“Expect QE to be expanded,” he said. Also “look for them to try and take a step forward on quantitative thresholds,” said El-Erian, referring to the Fed’s likely move away from targeting short-term rates to a calendar date and to measures such as employment or inflation.”
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