QE3 May Top $1 Trillion: Analyst

The Federal Reserve’s open-ended effort to jumpstart the economy could top $1 trillion, dwarfing the central bank's last bond-buying sprees, a Wall Street economist said Friday.

The Fed’s move to purchase $40 billion per month of mortgage-backed bonds indefinitely has drawn its share of detractors and skeptics. Yet Diane Swonk, Mesirow Financial’s chief economist, told CNBC’s “Squawk Box” that she believes the Fed’s third round of quantitative easing will buttress the economy. (Read more: Dovish Fed Surprises Markets, but Will Stock Rally Last?)

“I think this will end up being a trillion-dollar commitment by the Fed,” Swonk said, adding that the eventual price tag of QE3 could exceed that of the $600 billion expended on QE2 —provided the Fed continues its efforts for at least two years.

“They could even up their game again and do some compensating for [Operation] ‘Twist’ by the end of the year” by coupling QE3 with their existing bond-buying program, Operation Twist.

Fed Chairman Ben Bernanke has acknowledged that the central bank’s efforts are constrained by “headwinds” stemming from Europe’s debt crisis and the uncertainty surrounding planned tax hikes and spending cuts in Washington.

Still, “I do think it will help the economy and help the employment picture,” Swonk said, adding that the focus on mortgage assets could have a beneficial effect on the housing market, which is already in an upswing. (Read more: How Does the Fed Help My House, My Mortgage?)

Ed Yardeni, president of Yardeni Research, however, said the US economy may yet see a “second recovery” — even without Fed intervention.

“I think the US economy has been growing reasonably well, it’s been too slow for some people and Bernanke has described the monetary situation as grave. I’m not too sure the monetary problem can really solve this problem,” Yardeni said.

He also warned that more bond buying could lead to another surge in oil and other commodities.

“The other thing is oil prices are going up: didn’t we just see this with QE2?” he asked.