QE3 is now at zero hour for any announcement out of Jackson. Markets have been pricing in expectations and pundit positions are every where. Conversely, why should the Fed say yes to QE?
A presidential election is a few months off, and the Fed must sustain neutrality. Political neutrality is a major Fed mandate, which neutrality is also expected of those elected. A quid pro quo. Also, equity prices haven't fallen over time despite overall caution in company guidance and reductions in revenue. Earnings per share have been revised down over time which seems natural against overall economic developments. But declines in revenue were surprising. Declines in revenue tell of limits in sustaining earnings.
Noted cash with some companies and considerable excess reserves among banks tell of hesitancy to engage opportunity. Hesitancy of course arises from ultimate insecurity in fiscal policy and regulatory behavior.For the Fed, insecurity tells of cash hoarding and inflation potential once hoards are released.Especially with market advantages gained by M&A activity over a few years.
Progression in economic indicators have been touted. For July results reported in August, retail sales, industrial production and durable goods orders have shown an advance. But, after how many months of decline or teetering on loss. Do they now show a climb out of a hole or a developing hole? Regional Fed manufacturing results have been very weak and moving into trending decline for some time.
Crude and gasoline are in a new place with demand obviously having increased due to world development. Still, technology and price differentials have created supply opportunity and advantages. For such opportunity to be realized, infrastructure development needs to occur in order to move product to refining centers and then global markets. It's occurring, but at what cost both financially and in gross petroleum flow.
Can QE3 cure hesitations among companies and banks, and then bring cash to markets? No. Can QE3 solve petroleum infrastructure problems? No. Once infrastructure gets addressed, can QE3 open new markets? No.
Totality of consideration puts QE3 at not likely now. Should it happen later or even now, diminishing returns will be realized.
Expected by the Fed is a tale told similar to ECB's leader of how all will be protected, should the need arise.
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