Deutsche Bank suggests that the Fed may need....>

FED: Deutsche Bank suggests that the Fed may need to further expand its balance

sheet by as much as $12trn to sufficiently ease monetary conditions (in addition

to the $3trn already since the pandemic started). They argue that under the

median economic scenario, the real Fed Funds rate should be negative 4 to 5%.

- Using a few rules of thumb as well as the historic experience of large-scale

asset purchases, QE will have to total between $8-15trn to reach that degree of

accommodation (depending on how effective you estimate QE to be in compressing

term premia etc: 3bps to 8bps of effective easing per $100bln purchased).

- At the current buying pace of $120bln/month ($80bln Tsys, $40bln MBS), this

would take between 4-8 years to achieve, "assuming that all other assets remain

unchanged, which will certainly not be the case as asset holdings in the Fed's

emergency credit and liquidity facilities roll off."

- They also argue that this is not even taking into account even more

pessimistic scenarios, which would necessitate even more accommodation. And in

their view, forward guidance would not provide additional meaningful easing, so

their estimates "likely represent the upper bounds of QE's effectiveness".