Sunday, December 9, 2012

News: Fed Expected to Expand Bond Purchases This Week as Incoming Pena Nieto Administration Submits Balanced Budget

Markets this week are expecting the US Federal Reserve System to announce an expansion of its new bond purchase program.  Currently, the Federal Reserve is purchasing 40 billion in mortgage debt in an effort to boost the housing market.  The financial press is currently speculating about the how the Fed will implement the expansion of its so-called QE3 bond purchase program.  The Fed could augment its purchase of securitized mortgage debt up to 80 billion.  The Fed may also purchase a further 40 billion a month of treasury securities.  This possibility would ease the Fed's task of implementing an exit strategy when it needs to withdraw the unprecedented stimulus it has provided to a sagging economy, since selling treasuries is easier to implement than selling securitized mortgages. 

Meanwhile, talks over the looming fiscal cliff continue to grab headlines as the White House and Congress struggle to hammer out a deal.  South of the border, the incoming Pena Nieto administration in Mexico has submitted a balanced budget for 2013.  Mexican law requires a balanced budget, a restriction that can be removed by an act of Congress.  The conservative PAN coalition had received approval to run deficits in 2009 as Mexico sought to support its economy in the wake of the financial crisis.  Mexico has been slowly shrinking its deficit since then, running a deficit of only 0,5 percent of GDP in 2012.  The new government will close the lingering shortfall by seeking out efficiency savings in the federal government and allowing income tax cuts for top earners to expire.  Under the plan, Mexico's top tax bracket will rise from 29 percent to 30 percent after the first of year.  Mexico also hopes to reduce it borrowing cost if rating agencies decide to reward Mexico's actions with a sovereign upgrade.  Mexico's Peso opened higher in Asia this evening at 12.835, up from Friday's 12.875 New York close. 

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