“The reaction function of the FOMC seems to have changed. In my simple terms, QE has never always come with the stock market down YTD — now, it appears we’ll receive it with S&P up 14%.”
That’s from a Goldman desk note send around earlier today, and it’s a great point.
This chart from Doug Short shows it nicely, that all previous QEs and Twists came during periods when the market was at a low.
Photo: Doug Short
So will we wee QE3 on Thursday?
We argued NO.
John Carney at CNBC says YES.
Carney is correct that the weak state of the economy probably complies with the Fed’s previously stated preconditions for easing. That being said, the new twist is the potential ECB gamechanger that could be a real boon in the next few months.
For that reason, a punt ’til December seems likely.
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