If you’re betting that the Fed is about to stimulate the economy in a big way on Thursday, you may be in for a rude awakening.
So says, Stephen Stanley, Pierpont Securities Chief Economist.
Stanley thinks that the QE3 euphoria that’s swept the Street after last Friday's jobs number is misguided. (Bulls believe the lackluster jobs data gives Ben Bernake a reason to act.)
However, Stanley argues that there are many other influences at play and when you add them up, the environment doesn’t warrant Fed action.
1. In the past when the Fed has implemented QE, part of the action has been generated by the Fed’s concern about asset prices. “This time around the market is at a 4-year high.”
2. The case for spurring growth is weak. Except for jobs, most of the recent economic data has been strong, at least relatively.
3. Inflation expectations are quite a bit higher than at other times when the Fed has implement stimulus.
4. The Fed would step on Operation Twist. “They’ve pounded the table that extending Twist was a big deal,” says Stanley.
5. The election plays a role. “The Fed is a campaign issue this year. It would be waving a red flag among conservatives if they do QE now.”
