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More Fed Stimulus – As Expected

Written by admin | Jun, 12, 2013

qe-vs-sp500We have been saying for months that when QE 2 ended that the economy would fade, markets would struggle and it would not be long before the Fed started talking about QE 3 to infinity.    Since QE has been the sole driver to the markets to date why on earth would you repeal the one thing keeping asset prices aloft and the consumer’s attention focused away from the real problems of the economy and watching the little green ticks on their computers.   

The Fed released their minutes today in which it showed that some Federal Reserve officials are ready to provide more monetary policy easing if the recovery is too sluggish to cut the lofty U.S. unemployment rate and if inflation eases as expected.   Well, we are pretty much there.   While others disagreed and said that if recent increases in inflation do not moderate, the Fed should consider tightening policy sooner than expected, inflation will decline as commodity prices recede over the next couple of months due to lack of stimulus.   This will open the door for the few dissenters to join the ranks of the “pump it up” clan.

Fed officials said they expected the economy would pick up in the second half of the year after slowing this spring, however, while they are optimistic on the outside they are very concerned that the outlook for both employment and inflation are “unusually uncertain, given the sluggish growth and a jump in energy prices this year.”

Bottom line – keep a watch out for more talk about QE 3 in the coming months.

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