Fed will do more, but QE3 is not the best option

We now think that the Fed will provide more policy stimulus when the FOMC next meets in September. The most likely scenario is a third round of asset purchases (QE3), this time focusing on mortgage-backed securities rather than Treasuries. But we think a better way to boost growth would be to cut the interest rate payable on excess reserves (IOER) if it was accompanied by a complementary “Funding for Lending” programme.