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What to Expect From the Fed?

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.

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