Unemployment is still too high, growth too low, and confidence shaky. But the fact remains that things could be - and have been - a lot worse than they are today. As a result, the Fed will remain on hold for the foreseeable future, if and until things start to deteriorate again, at which point they would be obligated to act and the launch of a so-called QE3 would be warranted.
"This level of lousiness doesn't trigger a Fed easing or quantitative stimulus," my co-host Jeff Macke says in the attached video, in which we debate whether the market can handle the reality of having to stand on its own feet instead of clinging to the coattails of the Fed.
To its credit, our clearly dovish central bank has done more than anyone to restore stability and faith in the economy the past four years, and has also repeatedly made clear that it stands ready to act, to do whatever is necessary, should the economic situation worsen.
"As long as they keep threatening to do something, that's probably the best case scenario," Macke says, echoing a call for restraint made Monday by long-term market bull Jim Paulsen of Wells Capital Management on this program.
As much as Macke and I are convinced the need to ease is gone, it's not clear to what extent the market shares that view, or how much of a disappointment a Fed-on-hold will actually be.
While difficult to quantify the Fed's role in the rally, Macke believes the market has "caught up with the idea" and is also ''handling it already."
While I am convinced that QE3 is off the table at the Jackson Hole economic meeting as well as at the next FOMC meeting in mid-September, I am expecting a data-point-by-data-point debate to accompany each economic report to decide whether the Fed's impossible new "substantial and sustainable" threshold is being met.
Unfortunately, Bernanke and the Fed don't make announcements about inaction, so Macke and I had to pick up the slack. Not only is the Fed on hold, and the markets (at a 5 year high) handling it well, but their decision to do nothing should be seen as a vote of economic confidence rather than the death knell for stocks.