fomc meeting 2012

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Fed Meeting Today: Are You Ready for QE3?

Investors have prepared for the Federal Open Market Committee (FOMC) meeting today and tomorrow to end with the announcement of a third round of quantitative easing (QE3) - and that's a good bet to make.

Today's Fed meeting will likely end with more of the same information we've been hearing for months from U.S. Federal Reserve Chairman Ben Bernanke. It's been a year and a half since Bernanke first announced that short-term interest rates would remain near zero "for an extended period." That language will likely stay the same tomorrow, and the policy timelines could be drawn out even longer.

There is also no doubt that QE3 or some other meaningful economic stimulus measure is on its way.

Maury Harris, an analyst with UBS, declared in a recent note to clients that, "We now anticipate an announcement of another round of quantitative easing at the FOMC meeting on September 13th. We expect the easing will take the form of a six-month program of at least $500 billion, primarily focused on Treasuries."

Harris also added that, "We also expect the FOMC extends their rate guidance into 2015."

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Today's FOMC Meeting: Here's What the Fed Could Do

U.S. Federal Reserve Chairman Ben Bernanke will address the nation after today's FOMC meeting, and there's not much left in his bag of tricks to stimulate the U.S. economy and avoid the recession many are predicting for 2013.

After more than three years of trying to rouse the economy, hiring remains weak, unemployment is still elevated, and economic growth has ebbed.

As the Fed concludes its two-day policy meeting today, it needs to act sooner rather than later - and may be ready to do so.

"I think Fed officials will send a pretty decisive signal that they are prepared to provide more support to boost economic growth and lower unemployment," Brian Bethune, economics professor at Gordon College in Massachusetts, told the Associated Press.

Here is a trio of scenarios Team Bernanke could present.

What Could Happen at Today's FOMC Meeting

#1: The Fed Continues Operation Twist

There's a good chance the Fed will decide to continue its previous monetary stimulus method, "Operation Twist."

Under this strategy, the Fed traded $400 billion in short-term bonds for those with longer maturities. The goal of the twist is to drive down long-term interest rates.

This creates an environment that makes it cheaper for businesses to obtain loans and for consumers to get a hold of mortgages and other forms of credit.

Goldman Sachs Group Inc.'s (NYSE: GS) chief economist Jan Hatzius said in an e-mail to clients he expects the Fed to start a new asset purchase program.

"A decision not to ease is tantamount to a tightening. At this point we'd be quite surprised if we saw no easing," said Hatzius.

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