Large Banks Uncertain about Economy, Certain about QE3

Some of the nation’s most influential financial institutions might not know what U.S. GDP growth, inflation and employment data will look like in 2012, but they do know this: no matter what, the Federal Reserve will be there to keep pumping trillions into the world’s financial system.

A survey of primary dealers conducted by the Federal Reserve Bank of New York — and released to the public Wednesday — showed a great deal of uncertainty among the 21 large banks that act as counterparties to the Fed’s open market transactions, with the survey noting the firms largely admitted their predictions for GDP growth, inflation and the unemployment rate in 2012 were slightly on the optimistic side.

But by the same token, firms were nearly unanimous in believing the U.S. central bank’s accommodative zero-interest rate monetary policy would last for at least 30 more months. Furthermore, the survey showed a strong belief that a new round of quantitative easing – the central bank’s practice of flooding the financial system with cash by buying up illiquid securities – would occur within the year: the median view held the possibility of this happening in the next 12 months was 60 percent.

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