It ultimately is up to Big Ben to decide whether the central bank should go to even greater lengths (and expense) to stimulate growth. Operation Twist taught us just how creative the Fed is willing to get, but amid growing dissent and division it is becoming increasingly difficult for the Fed to take any action.
QE3 is Dead In the Water
Some folks continue to insist Bernanke will push for another round of quantitative easing — despite the lack of any such proposal at the last few meetings as QE2 has drawn to a close. Comments by several Fed officials hinted at another round of quantitative easing if the economy continues to deteriorate, but surely the red-hot run of October has provided a stark contrast from the gloom of August when such speculation over QE3 arose.
Most practically, the political environment in Washington is antithetical to those efforts. Aside from philosophical arguments about the role of the Fed and long-term inflationary fears, there is a very good case to be made that QE2 did not result in material improvements to the economy. The job market remains ugly and lending remains stagnant.
Republican members of Congress — and presidential candidates — have created quite a hostile environment for any Fed plans to “print money out of thin air,” and back in September we even had a blunt letter from Republican leadership in both the House and Senate warning Ben Bernanke to sit on his hands and do nothing. The Fed embarked on Operation Twist anyway, but a push into QE3 would create a firestorm in the run-up to debt debates and a discussion over the role of government by the congressional supercommittee across November and December.
In short, even if there was the will within the Fed to launch QE3 (which is questionable) and even if there was an ironclad case for QE3 (which there isn’t), there are a host of outside influences that would undermine the effort. So it’s a nonstarter.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.