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Forget QE3...And Get Ready for QE4: Pro

Javier E. David | Special to CNBC.com
Tuesday, 11 Dec 2012 | 2:53 PM ET
iStock

The Federal Reserve, fresh off its announcement of a third round of bond buying, may already be laying the groundwork for a fourth, a market analyst told CNBC "Futures Now."

With uncertainty over taxes and spending at the fore of consumers' minds, "the stars are aligned" for the Federal Reserve to prepare markets for a fourth round of quantitative easing, said George Goncalves, head of US rates strategy at Nomura Securities.

"They do want to keep the easing train going," the analyst said, especially as they wrap up their "Operation Twist" policy selling short-term debt in an effort to depress long-term interest rates.

"They are probably going to start expanding their balance sheet and we think it does make sense to start calling it QE4," Goncalves added.

Few analysts expect a dramatic pronouncement from Wednesday's Federal Open Market Committee meeting. Still, Goncalves said the central bank may use the opportunity to "tweak" its guidance on the duration of the massive bond-buying in which they've been investing as part of QE3. (Read more: QE3 Will Not Help US Consumers or the Jobless: Roach.)


QE4 on the Way?
What will the Fed do next? A top strategist reveals how he's trading the Fed meeting, with George Goncalves, Nomura, CNBC's Jackie DeAngelis and the Futures Now Traders.

The Fed's language may signal an emphasis of its buying efforts on the middle of the Treasuries yield curve, Goncalves said, which could help keep borrowing costs at their current rock bottom levels.

"I think they're going to…save some ammunition for next year"in the event that the "fiscal cliff" stalemate dissolves into an impasse that forces new tax hikes and deep spending cuts on the economy, Goncalves said.

Still, the Fed remains committed to pumping liquidity into a lumbering economy. That means continuing to grow its nearly $3 trillion balance sheet – currently more than 20 percent of U.S. gross domestic product – with more debt, the analyst said.

"We do believe that for the next 5 years they are going to have to deal with an enlarged balance sheet to really buy time, and let inflation work its way through and push down debt."

Read on for 10 Things You Need to Know to Trade Futures

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