At the end of last month, the U.S. Federal Reserve brought down the curtain on its $600 billion "quantitative easing" initiative, a U.S. Treasury-bond-purchase program that investors liked to refer to as "QE2."
Fed Chairman Ben S. Bernanke has indicated that he does not intend to carry out a follow-up "QE3" program.
But here's the reality: The U.S. federal deficit is running at about $1.6 trillion, meaning we need to sell a lot of Treasury bonds to finance the shortfall. So if the Treasury-bond market gets a case of "indigestion" – meaning there aren't enough buyers to fulfill our massive financing needs – many folks believe that Bernanke will have to step in with the-much-talked-about "QE3" bond-buying program.
But Ben, please be forewarned: If you do this, our future is clear …
A Glimpse of Our Future
The year is 2015, and it's late in the month of June. Central bank policymakers have been meeting for two days. Now it's late in the afternoon of that second day, and Bernanke's traditional press conference is set to start at any moment. Investors the world over have stopped everything to hear what the U.S Fed leader has to say.
Bernanke is still not the longest-serving Fed chairman: With only nine years under his belt, he has a decade to go before he'd have more service time than predecessor Alan Greenspan, or the legendary William McChesney Martin.
But as Fed chairmen go, Bernanke is uniquely powerful – perhaps even more so today than he was back in 2011. We all know that he won't change interest rates, which have now been held in a target range of 0.00% to 0.25% for nearly seven years. The real question – and the reason we're waiting for the press conference to start – is whether the former Princeton economist will indulge the financial markets with a further round of quantitative easing.
This round of Treasury bond purchases would be "QE17" – but these days, nobody's counting.