The WSJ’s well connected Hilsenrath tips that the Fed will look closely at more stimulus at their next meeting.
This should not be surprising. Every time US growth has looked like slipping sub-trend (remember, potential GDP is probably motoring ahead to ~2.5% YoY) or there has been trouble in Europe, Ben has done more.
Both are the case this time. Making the main question which option is chosen.
The paragraph that struck me, however, was this one:
The landscape for the Fed is complicated by the presidential election. Mindful of his own legacy and the Fed’s independence, Chairman Ben Bernanke seems unlikely to allow the political calendar to sway his decisions. He appears especially immune from politics now, with just 18 months left in his term as chairman and little indication that he wants another. Still, some investors speculate the Fed has an incentive to decide quickly to avoid shifting policies close to the November vote.
Is there a chance that Ben has life in academia, and the criticisms from his former (and prospective) peers in mind?
I suspect that this is the case – and that Ben is therefore likely to go for a substantial MBS programme, with a bit of long term bond buying, most likely unsteralised.
Bernanke and Yellen are likely to hint in this direction when they speak over the next few days.