The speculation is rampant over whether the Federal Reserve will authorize quantitative easing 3 (QE3). The following two excerpts outline both sides but one thing is certain: an economic collapse is imminent.
RATE FUTURES REPORT: Market Sees Rates Drop, But No QE3 Yet
CHICAGO (Dow Jones)–A glut of dismal economic data caused traders of U.S. interest rate futures to price in lower yields Wednesday, while options players employed strategies envisioning rates will move even lower.
An increase in the short-term federal-funds rate during the first half of next year is now viewed as an unlikely scenario. However, the possibility that the Federal Reserve will adopt a third round of quantitative easing is not a dominant topic, some veteran market participants said.
The latest data show the economic recovery is slowing as the Fed gets ready to conclude its current quantitative easing program, known as QE2. By the end of this month, the central bank will finish buying $600 billion in U.S. Treasurys, aiming to keep longer-term rates low to help stimulate economic activity.
However, recovery from the deepest recession since the 1930s is agonizingly slow, if Wednesday’s economic reports are any indication.
The first troubling piece of data, the so-called ADP employment report, showed the economy added only 38,000 private-sector jobs in May, far fewer than the gain of 190,000 expected by analysts.
Could There Really Be a QE3?
With weak jobs and housing data piling up, economists and currency investors are starting to ask if Bernanke will deliver another injection of economic growth hormone. It’s been a long, cold spring for dollar [.DXY 74.89 0.25 (+0.34%) ] investors. Low U.S. interest rates brought on by the current second round of quantitative easing, or QE2, have been a key factor weighing on the greenback, particularly as other countries have started tightening monetary policy. Understandably, traders have been waiting breathlessly for the end of QE2. But as disappointing jobs numbers follow dismal housing reports, economists and currency experts are starting to ask the once unthinkable.
Based on the stock market performance today (June 1, 2011), I think we will have an answer very shortly. Is QE III is not implemented in a short period of time, the only other recourse is economic collapse. However, if QE III is implemented, we will only be staving off the inevitable.
David DeGerolamo
