Just days after Fed chairman Bernanke left the door slightly ajar for QE3 in his Jackson Hole speech, the market is already attempting to kick that door wide-open. Bernanke claimed that the central bank has pretty much done all it can do and asked for lawmakers to do more on the fiscal side. However, in the wake of the contentious debt ceiling debate, investors rightfully are assuming there will be no political compromises on fiscal stimulus until after the 2012 Presidential election. And even then, unless one party holds the Oval Office and both Houses of Congress, it would be doubtful.
Therefore the ball is squarely in the Fed's court. If there is to be any stimulus at all, it will have to be the monetary kind. The market is already looking forward to the September FOMC meeting in 3-weeks, anticipating that the punchbowl will inevitably be refilled and the party can continue. Today's terrible consumer confidence print for August will add further impetus to the cup-banging for 'more punch.'
Consumer confidence plunged to 44.5 in August, a level not seen since the worst days of the financial crisis in April 2009. The decline from the negatively revised 59.2 reading in July was the biggest point drop since October 2008, just after the collapse of Lehman Brothers.
ZeroHedge cited a Goldman Sachs report today that states that they believe further monetary easing is indeed in the offing. They do suggest that inflation, which continues to be at the high end of expectations, and last week's better than expected PCE data are potential mitigating factors. Although I would argue that today's big confidence miss pretty much offsets the latter, and perhaps the former as well.
Goldman suggests some "radical" measures that the Fed might employ that may garner some more favorable results than the QE measures of the past. If the Fed does indeed go "radical," so too would the gold market in all likelihood. As the pseudonymously named Tyler Durden of ZeroHedge quipped, "we hope readers have their gold $3000 calls firmly in place."