Calculated Risk: August 1st QE3 Departure Date?

Here it comes… and we may have no choice:

First, I think Bernanke paved the way for QE3 at the press conference on June 20th. Before embarking on previous rounds of QE, Bernanke always outlined the reasons – and I thought he made it clear that if the economy didn’t improve, more accommodation was coming. And, if anything, the data has been worse since the last meeting. However there has only been a limited amount of data (Q2 GDP will be released next week), and some participants might argue they need additional data before supporting QE3.

Second, two of the key undecided voting members of the FOMC are clearly moving closer to supporting QE3. Last week Atlanta Fed President Dennis Lockhart came close to advocating QE3. Although Lockhart weighed both sides of each issue in his speech, he concluded: 1) the risks of QE3 are “manageable”, 2) QE3 will be modestly effective, and 3) his earlier forecast is becoming “untenable” and that means he will support more accommodation if the recent weak data continues.

Third, it appears some key members of the FOMC (Yellen, Dudley, Williams) are all pushing harder for QE now. San Francisco Fed President John Williams is definitely being more aggressive…

…and tack on events in Europe and predictions for 1.1% GDP growth in 2012, and the Fed may have no other choice but to debase the US dollar a bit further.

Which only makes the consequences of all this printing that much more grave.

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