There seems to be a general consensus on XJO that it's time to turn lower. And I'm in that camp as well.
(Are we the dumb money or the smart money?)
In the longer term any fall back (if it occurs) might be muted. QE3 is being advocated strongly by many influential people - not just hinted at - and not just in the U.S. - but a co-ordinated effort seems likely across the G7.
The following article is by Adam Posen, a member of the BoE Monetary Policy Committee.
Much discussion since the Fed's August meeting has centred around the date for holding interest rates low (2013). But hints were given that some version of QE might be needed. QE3, if it happens may not be in the same form as QE2. Here is a takeaway from the minutes - this part has been largely ignored in the media because of the emphasis on interest rates:
[QE3]
"Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates."
[Altering Composition of Balance Sheet]
"Others suggested that increasing the average maturity of the System?s portfolio?perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities?could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve?s balance sheet and the quantity of reserve balances."
The Fed is concerned about the deterioration of the American economy. Here's the opening statement from the Minutes of the August meeting:
Economic Outlook:
"Participants generally saw the degree of uncertainty surrounding the outlook for economic growth as having risen appreciably. A couple noted that the cyclical impetus to economic expansion appeared to be weaker than it had been in past recoveries, but that the reasons for the weakness were unclear, contributing to greater uncertainty about the economic outlook. Many participants also saw an increase in the downside risks to economic growth."
This statement makes it an almost given that the Fed will undertake some measures to stimulate demand. The only matter to be discussed would be "how" not "if".
No wonder the Fed has scheduled a 2-day meeting for September instead of the usual one-day meeting. They're going to be thrashing out a lot of policy about "How" not "If". If "if" is the object of debate - one day would be enough. If "how" is the object of the debate - a longer meeting seems necessary. I'd like to see the Feds agenda ahead of the meeting. But they don't hand it out to me. :)
(20min delay)