All eyes are on the Fed meeting and the almost fully expected (99% chance, already priced in) round of quantitative easing (QE) that will be announced upon the conclusion of the September 12-13 Federal Open Market Committee (FOMC) meeting. Or not.
If not, then we should all expect a very large market sell-off as the news is sold, and sold hard. If the stock market is whistling past the graveyard by ignoring all of the signs of slow/low economic growth, if not outright recession, because it is pricing in another large round of thin-air money printing (QE), then if that QE does not happen, the operative phrase is almost certainly going to be 'look out below.'
It is my belief at this point that the Fed is almost certain to disappoint the markets with this announcement on Thursday.
Why? Because the markets have priced in something a lot larger than the Fed is likely to deliver. By front-running the announcement and driving stocks to within a whisper of their all-time highs, speculators – I refuse to call them 'investors,' as is popular in the mainstream press – have made things difficult for the Fed. Certainly, if stocks were wallowing near their lows or suffering in some way, then the Fed could more easily ride to the rescue and expect broad support.
But now? Any big QE announcement by the Fed will be seen as a political move designed to help incumbents get re-elected.
Just look at how expectant the major speculators are:
Fed Stuck at Zero Into 2015 Seen in Swaps, QE Odds Reach 99%
Sep 10, 2012
Just six months ago, money market traders expected the Federal Reserve to raise interest rates by the end of 2013. Now, they see borrowing costs staying at record lows for about three more years as the economic outlook worsens.
Bond market measures from overnight index swaps, which indicate no increase in the federal funds rate until mid-2015, to a 62 percent decline in a measure of volatility in government bonds signal that rates will stay near zero for longer.
A gauge of indicators of market expectations for additional central bank stimulus rose to a record 99 percent in August, according to Citigroup Inc. The measure increased to 82 percent in the months before QE2 in November 2010.
by cmartenson 
