To QE or Not to QE? That is Fed's Question

But my question is how much expectation is there that the Fed will announce more QE. There has been much speculation that the Fed will offer a plan to expand its balance sheet by offering additional easing measures today and more pundits seem to be chiming in with this opinion than in times past. While I am ready for the possibility that this may be the case, I do not think it is going to happen.

Yes the employment situation is stagnant, but is buying mortgage backed securities going to change that? Highly unlikely. Another way the Fed could ease, is to lend dollars to the ECB so that ECB could then fund their own easing measures. The US "easing" in this case would be in the assumption that those European lent dollars would eventually find their way back into the US economy. Sounds like a bad idea to me and is unlikely to be announced today. The main reason why the Fed won't offer more QE today though is because the market is at its highest levels since early 2008 and other economic indicators (aside from employment) have been refreshingly positive of late. More QE now would be acknowledgement by the Fed that there is little hope for the economy. There is no way that the time is now to offer additional QE. Keep those tools in the shed Bernanke.

But hey the Federal Reserve isn't asking my opinion and all I can do is speculate on what is going to come out of yesterday's minutes. I won't worry about whether I am right or wrong, I will just be ready to trade the Market reaction to whatever comes out of the Fed announcement and Bernanke's press conference.

We will see the first reaction today at 12:30 EST when the FOMC announcement will be released. The Fed will leave rates unchanged and will likely extend guidance beyond 2014 to keep rates exceptionally low. If there is a new asset purchase program, it will be detailed in the announcement. If this happens, the market will react with volatility and I would look to buy the first significant dip. If there is some form of QE announced we may not even get a significant dip. If you are of the belief that there will be additional QE, then perhaps you are already long going into the announcement. But you have to be cautious playing that game as the market is already bid up quite a bit ahead of that potential news. That is why my biggest question is how much is or isn't additional QE already priced into the market. The market reaction later today should provide answers.

At 2:15pm EST, Bernanke will give his press conference. Again, depending on what comes out of the announcement, the market will be reacting to Bernanke's statements here and we can expect volatility. Ultimately, if there is no new easing/asset purchase program by the Fed, I'll be looking for opportunities to get short and sell any rallies. If there is a new easing program, I'll be looking to buy any significant dips.

As much anticipation as there is ahead of the Fed announcement, I think the bigger issue remains in Europe and not whether the Fed will ease further. I believe that money printing will come from the ECB before it comes from the Fed and likewise, markets seem to react more to what Draghi has to say lately than what Bernanke has to say...

I will comment more following Bernanke's press conference which you can watch here.