Tuesday, August 14, 2012

Reduced Chances of a QE3 in September

We have been saying this for a while, and now it appears that some big names, such as Goldman Sachs, are also saying it: probability of a QE3 in September has declined.  This could make the upcoming Fed meeting (or conference) at Jackson Hole, WY pretty much an eventless one. 

We emphasize that those big firms continue to believe a QE3 will be announced and/or implemented before the end of 2012, likely in Dec.  We believe this won't happen unless Israel attacks Iran which will of course drag the US into another war.  If so, then political reasoning will override an economic one and will force the Fed to launch a QE3.  Yes, even if the attack pushes oil prices significantly higher, the Fed and the government will agree to ignore threats of inflation, as a war would likely contribute to the economy initially, potentially lowering impact of too much inflation.  In addition, the government would love to tie that patriotic emotion that many Americans feel during a war (whether the war is justified or not) with the pitch of 'help your country and consume more, especially the American goods' to not only make the QE more effective (not likely) but also more justifiable.    

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