A Walk Down Easy Street: Why QE3 Is Just 2 Weeks Away


Unlike the August meeting of the Fed's Open Market Committee, the September get-together by the central bank's rate-setting panel will be held after the latest jobs data is released. While economists are expecting 120,000 new jobs were created, Andrew Wilkinson, chief economic strategist at Miller Tabak says the August tally doesn't matter all that much since Ben Bernanke and the Fed will act upon what they see a year or two down the road, rather than what's in the rear-view mirror.

"The bottom line here is that employment gains are simply not strong enough for the Fed's liking," Wilkinson says in the attached video. "We've seen a rebound in housing, sure, but that's not what is going to get the economy back on its feet."

Not only does his case for QE3 take in the the tone and tenor of the August meeting minutes, including the new "substantial and sustainable" clause, he also says it is ''pretty clear'' that the crisis in the Eurozone has caused our economy to slow.

Add in Wilkinson's expectation that this quarterly meeting will include downward revisions to the growth and employment targets, and the stage is set for another half a trillion dollars or so of good old fashioned economic stimulus.

"The catalyst (for QE3) is the very fact that at the end of the two-year time horizon, unemployment is still going to be way above where the Fed wants to see it," which he says is in the 5.5 to 6% range.

As much as guys like me talk about the recent improvement in the economic data lately, pros like Wilkinson say the gentle uptrend is not enough to please the Fed.

"The economy is moving ahead, but it's moving ahead nowhere near substantially enough to deliver low unemployment," he argues, adding that another year of treasury and mortgage-backed securities buying "to the tune of $500 to $600 billion" is what he expects to hear from the FOMC on September 13th.

As for those who say any such move would be wrought with political risk, coming less than two months before the elections, Wilkinson says it is ''simply not true'' that the Fed won't act in an election year.

What do you think? Will recent data effect the Fed or is the big ease - QE3 - headed our way in September?

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