Many people expect (Uncle) Ben Bernanke and the Fed to ease up on monetary stimulus as the economy continues its “recovery.” At the same time, some believe that the economy needs more stimulus and that it’s only a matter of time before the Fed announces “QE3,” the third installment of monetary stimulus.
Count me among those who believe that Uncle Ben will stimulate some more.
However, there is a caveat – UB knows that a lot of people are not happy with his stimulus and its effect on the value of the dollar and on the prices of commodities. He will therefore have to show some tact and wait for a good excuse before acting. Here’s how I think it will play out:
1. QE3 is not announced in June – stock and bond prices fall a bit
2. 2-3 months pass and markets begin to sputter as interest rates rise a bit and stocks fall (remember Bernanke specifically hinted that rising stock prices is what he wants).
3. Uncle Ben, spotting his moment, right when investors start despairing that their 401k balances are sagging, comes to the rescue with QE3!
And it’s funny, many who say they would want inflationary forces to be reduced, will be very happy that their investments are reinflated by monetary stimulus.
If this story sounds familiar to my readers, it’s because you have seen it before. I wrote a very similar story in Gold Just Got Another Green Light. In that article I wrote:
Now however, with “proof” that the economy is weakening, in the form of disappointing jobs data today, Bernanke has th green light to print. How will he do this? First off, let me share why I think this is coming soon. Various Federal Reserve officials have dropped hints over the past month or two saying something along the lines of (and I’ll sum up all their comments collectively) “we stand ready to take additional measures if necessary to stimulate.” Specifically, Janet Yellin, the new Vice Chair of the MoneyPrinting Reserve Bank (Fed) said that she would make interest rates “negative” if she could.
Be prepared for a market correction and another big announcement from the Fed after ‘the people’ cry for help.
