Prediction: Fed will Tinker with interest on excess reserves, not QE3
I really don't think the Fed is gonna sit idly by and let the situation continue to deteriorate, it just hasn't been their style. Maybe an alternative route 'the Beard' chooses to use would be to shift the composition of the balance sheet to agency MBS from Treasuries. Purchasing risky assets would likely trigger the portfolio balance effect. A rally in mortgages should be followed by tighter credit spreads; if bank credit spreads also tightened, the equity market would likely follow that. Thoughts?