Which Direction?

There are two possible extreme courses:

1) The economy grows and QE3 is not needed
2) The economy falters and QE3 is needed.

What the market seems to like is the second alternative, while I like the first alternative. What has happened every time QE3 is 'more off the table' is the market falls. But this is very shortsighted. Bernanke has made it very very very clear: The main reason for the Great Depression going longer than expected was a too quick increase in interest rates. The Fed WILL keep rates low for an extended period of time. Once economic growth returns in a reasonable rate, then and only then will the Fed take the foot off the pedal.

But the markets seem to react to every Fed meeting with uncertainty and confusion. The idea that the economy grows should be good news for the stock market. But instead, economic growth is being met with disbelief. The market is so pessimistic that the idea of sustained economic growth is discounted to the extreme. This negativity is seen through out American society today.

Even if the economy muddles through and provides low economic growth, the Fed will continue very aggressive expansionary actions. Only strong economic growth will force the Fed to act to reign in already occurring inflation.