Markets overwhelmingly are looking for the Federal Reserve to announce a new program of asset purchases as soon as Thursday to try and boost the US economy, according to the latest CNBC Fed Survey.
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But Wall Street is expressing considerable skepticism that the Fed's actions will do much good to bring down the unemployment rate.
On the other side of the Atlantic, however, actions by European Central Bank President Mario Draghi have eased at least somewhat the European financial crisis.
The survey found a larger (though still small) percentage of respondents who believe the euro zone will remain intact over the next five years. And investors see a reduced probability of bond defaults by troubled countries compared with the prior survey. (Read More: Bank Chiefs Bank Draghi's Bond-Buying Plan.)
A full 90 percent of the 58 money managers, strategists and economists who responded to the September survey think the Fed will announced a new program of quantitative easing in the next 12 months.
(Read More: What Wall Street Is Saying About Fed and Economy.)
Of those who think QE is coming, 77 percent believe it will be launched at the current meeting, which ends Thursday, and 86 percent think the Fed will purchase a mix of Treasurys and mortgage-backed securities.
"If many FOMC members meant what they said about needing to see 'substantial and sustainable strengthening in the pace of the economic recovery' in order not to implement a third round of quantitative easing, then it is time for them to act," Mike Dueker of Russell Investments wrote in response to the survey.
Such a high level of conviction among market participants for Fed action raises the stakes for the central bank. It risks a market sell-off in equities if it fails to provide the expected stimulus.
Despite expectations for QE, investors are fairly pessimistic that it will help the job market. Chris Rupkey at Bank of Tokyo-Mitsubishi, notes that the stock market is rallying "on hopes for QE3 even as investors believe QE3 will have virtually no effect. The market does not seem to know what it wants, but the Fed is going to give it to them anyway."
Just 36 percent of respondents think QE will help lower the unemployment rate with 60 percent saying it won't.
"The Fed signaled a likely September policy move in the prior minutes, and the last employment report should seal the deal around QE rather than a communication change," wrote Mike Englund of Action Economics in response to the survey. "Nevertheless, there is likely little economic benefit from further QE action despite the defense made by Chairman Bernanke at Jackson Hole. The Fed is simply trying to look like part of the solution rather than part of the problem." (Read More: The Fed at Jackson Hole.)
Market participants also expect the Fed to extended the period during which it forecasts its benchmark lending rate will remain exceptionally low. Only a quarter of respondents think the guidance will continue to peg late 2014; 67 percent believe it will be extended into 2015 and 5 percent think it could be lengthened out to 2016.
While there has been much talk among Fed officials about ending the calendar date guidance and replacing it with economic targets to trigger monetary policy, just 32 percent of market participants favor such a move. If the Fed were to move to economic targets, 55 percent support inflation, 40 percent nominal GDP and 36 percent unemployment.
Amid the considerable skepticism about Fed policy, recent pledges by the ECB to purchase the bonds of troubled nations under certain circumstances look to have calmed market nerves somewhat.
One quarter of respondents think the euro zone has a chance of remaining intact five years now, up from just 11 percent in the July survey. The chance that some countries will be ejected or leave fell to 72 percent from 82 percent. And the probability of default on government bonds dropped for all the troubled countries in Europe.
For example, in March survey respondents put the probability of default by Portugal at 53 percent. It dropped to 34 percent in the September survey. Still, all the measures of European anxiety remain high and have mostly bounced off the most pessimistic levels. (Read More: Will New ECU Program Work?)
"The Draghi Band-Aid leaves the fiscal cliff as the single biggest near-term economic risk," wrote Robert Brusque of Fact and Opinion Economics. "But the longer term risk from Europe is still very significant as the Draghi plan fixes nothing and papers over the structural cracks in EMU."
For the second month in a row, the fiscal cliff is seen as the biggest threat facing the US economy, chosen 39 percent of respondents and almost unchanged from the July survey. The threat of the European crisis was chosen by just 24 percent, down from 30 percent in the prior survey.
The threat posed by slow job growth was chosen by 15 percent of market participants, up 8 points from July and now in third place ahead of tax and regulatory policies. (Read More: Election, 'Fiscal Cliff' Temper US Hiring Outlook.)
Three quarters of respondents say the threat of the fiscal cliff is hurting the US economy right now. "The U.S. and global economy are entering the most dangerous period of this economic recovery," wrote Ethan Harris, boa Merrill Lynch Global Research. "If the fiscal cliff is badly handled at the same time that the European crisis enters another acute phase, a recession is likely."
The probability of recession in the next 12 months was unchanged at 26 percent, but the group still sees slow growth in the US. Year-over-year GAP is seen coming in at 2.06 percent for 2012, just a bit higher than July and 2013 growth is seen at 2.21 percent.
Not much is expected from the stock market: the S&P is seen rising just around 1.25 percent by year end and 4.3 percent by mid next year. Interest rates are expected to remain low, around 2 percent for the 10-year note by June 2013.
-By CNBC's Steve Liesman
@steveliesman
