Perhaps.
Perhaps not;
Investing is a crap shoot in stable times. When betting on the psychological makeup of the members of the Open Market Committee its more like a game of "which way will the cat jump...?" when its tail is on fire... and its being chased by R's, D's, equity market players, and the TBTF banks (its real constituency).
Which way you figure the TBTF banks want it to go? My guess is, thats the way it will go...
nytimes.com
Fed Leaning Closer to New Stimulus if No Growth Is Seen
By BINYAMIN APPELBAUM
Published: July 24, 2012 160 Comments
WASHINGTON — A growing number of Federal Reserve officials have concluded that the central bank needs to expand its stimulus campaign unless the nation’s economy soon shows signs of improvement, including job growth.
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The question is expected to dominate the agenda when the Fed’s policy-making committee meets next week, with some members pushing for immediate action while others seek to delay a decision at least until the committee’s next meeting in September, so they can see a few more weeks’ worth of economic data.
The Fed’s chairman, Ben S. Bernanke, told Congress last week that the options under consideration included a new round of asset purchases, or “quantitative easing,” often described as QE3. As part of any such program, officials increasingly favor expanding the Fed’s holdings of mortgage-backed securities for the first time since 2010.
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Officials increasingly say that the economy has lost momentum after stronger growth earlier in the year. The unemployment rate fell by a full percentage point, to 8.1 percent, between September and April, but it has since made no further progress. Fed officials predicted in June that if they did not take further action, the rate would remain at or above 8 percent for the rest of the year. Fed officials are also concerned about the continuing crisis in Europe and the impact of substantial tax increases and spending cuts at the end of this year.
Mr. Bernanke has said repeatedly that the Fed would act if it concluded that the economy would not grow fast enough to reduce the rate of unemployment.
“We are very committed to ensuring, or at least doing all we can to ensure, that we continue to make progress on unemployment,” he told Congress last week.
For the Fed, there is a caveat that holds the key to understanding its pending decision. Current economic conditions would most likely warrant a cut in the Fed’s benchmark interest rate. But of course the Fed cannot cut that rate, which has hovered near zero since late 2008. Instead it must decide whether to try improving the economy by other means.
There is considerable evidence that the Fed’s purchases of Treasuries and mortgage-backed securities have reduced interest rates and encouraged investors to buy riskier assets like equities. Stock markets rally whenever the central bank hints at another round of purchases. The Fed has made two large rounds of asset purchases, first in 2008 and again in 2010. But the broader benefits of lower rates have been tamped down because many consumers and businesses are unable to qualify for loans.
Several Fed officials have expressed public support for buying mortgage-backed securities because studies show that such purchases have a larger effect on mortgage rates, allowing the Fed to take aim at the troubled housing market.
“If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities,” John C. Williams, president of the Federal Reserve Bank of San Francisco, said in a speech in mid-July.
The uncertain costs of such purchases have created a higher bar for action. Some officials worry that the Fed will disrupt financial markets by acquiring too much of the outstanding volume of Treasuries or mortgage-backed securities.
“It would be helpful to have a better understanding of how large the Federal Reserve’s participation would have to be to cause a meaningful deterioration in securities market functioning, and of the potential costs of such deterioration for the economy as a whole,” Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, said in a recent speech.
Other officials, however, play down this concern. The point of the purchases, in part, is to push investors into riskier assets. Mr. Bernanke told Congress last week that he recognized a theoretical limit on the amount of Treasuries that the Fed could own, but that he did not see it as an immediate constraint.
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