NEW YORK (CNNMoney) -- The Federal Reserve's QE3 bond buying program announced earlier this month could last until the middle of 2015 and eventually reach $2 trillion, according to an estimate from economists at Goldman Sachs.
The Goldman economists also wrote in a report that they believe the Fed will not raise the federal funds rate until 2016. This rate, which is used as a benchmark for a wide variety of consumer and business loans, has been near 0% since December 2008. The Fed said in its last statement that it expected rates would remain low until mid-2015.
The Fed announced earlier this month that it would buy $40 billion a month in mortgages for the foreseeable future, a plan that has been dubbed QE3 since it is the central bank's third round of quantitative easing. The Fed hopes that by pumping money into the economy lowering mortgage rates, QE3 could lead to more consumer spending and more hiring by businesses.
Goldman's $2 trillion estimate also includes the buying of long-term Treasuries planned by the Fed under an extension of what is popularly known "Operation Twist." In that program, the Fed is selling short-term Treasuries to fund those purchases.
The Goldman economists also said they think the Fed wants to see the nation's unemployment rate in the 7% to 7.5% range before it ends its bond purchases, and in the 6.5% to 7% range before it starts raising interest rates again. Unemployment stood at 8.1% in August, down from 8.3% in July. But much of the most recent decline was due to job seekers, particularly young adults, dropping out of the labor force as opposed to a pick-up in hiring.
CNN Money
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