In the July 7 post (“Evaluating QE2“) I mentioned that “…I believe that QE3 or something very similar will be done in the future.”
There are many reasons for this belief. Among the reasons for additional QE include the recent market tumult, visibly weakening economy, and various confidence measures that have nosedived.
My belief in further QE is an expectation, as opposed to an endorsement of the idea. While my thoughts on the QE concept are complex, in my extensive writings on the subject I have indicated that I believe that Quantitative Easing carries substantial risks, unintended consequences, and many complex impacts on the economy and markets.
However, QE3 would provide various markets – especially the stock market – with a significant boost.
For reference purposes, here is a recent chart from Doug Short’s blog post of August 5 (“Chart of the Day: Anticipating QE3“) depicting the movements of the S&P500, 10-Year Treasury Yields and the Fed Funds rate over the periods of QE1 and QE2:
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1132.34 as this post is written