While I wish for the day when the millions of market participants daily set the price of money based on the natural supply of it and demand for it, instead of relying on the chief arbiter of economic growth, employment, inflation and asset prices, the Federal Reserve, here we are at another day debating what the Fed will do. Putting aside what they should do, what they will do is something because the last thing they did is expiring. Operation smother the yield curve as I call it will likely shift to the MBS market to close the spread b/w it and treasuries. Twisting the curve is not free though as the Fed further floods their balance sheet with more interest rate sensitive, longer term securities, a noose if they need to reverse policy in the next few years. If twisting is all we get, if at all, stocks are a sell on the news b/c I believe the only thing keeping this rally alive are the hopes and wishes for bailout/easing help. It is certainly not on the outlook for global economic growth.
