It looks like everyone else is putting their head on the chopping block here so since I am in the business of putting my head on chopping blocks I figure I might as well take a knee here and lay my big melon down on a comfortable piece of wood.
I’ll keep this brief. I don’t think QE3 is coming today, which would be an entirely new program involving fun economic non-events involving asset swaps. Instead, I think the Fed is more likely to give the market a language change hinting at QE3 in the future as well as an extension of Operation Twist. I wouldn’t be shocked if the extension of OT involves MBS purchases.
The market response? Probably an initial sell-off in risk assets and rally in safe haven assets followed by a reversal as investors realize that the odds of QE3 are now higher and the extension of OT is a net positive (or so the market believes).
If I don’t respond in 20 minutes it’s probably because my head is rolling around on the floor somewhere. If you find it, kindly put it in a close by dumpster so as to avoid temptation by others to kick it. Thanks.