The way I see it, the Fed is now in a bit of a pickle.  With Bernanke's "it's all about jobs, jobs and jobs," the little fib justifying aggressive QE evolved more into a white lie.  Some Fed officials have been opposed to any additional QE.  Some were likely convinced by Bernanke over the summer/fall that the fragile global backdrop made aggressive monetary stimulus necessary.  But today, with global markets on fire, only the hard-core doves would likely believe massive ongoing QE is warranted.  Many would today likely see the risk of fueling asset Bubbles as overshadowing suspect QE benefits.


It's safe to add the Fed's "pre-commitment" of $85bn monthly QE -- and tying such extreme accommodation to the unemployment rate -- as one more major policy error for the history books. The Fed's quandary is today compounded by its obfuscation and convoluted communications strategy.


A mini "exit strategy" is definitely in order -- and it's been awhile since the markets had to fret about a reversal of Fed accommodation. And, importantly, the longer "risk on" spurs global market excesses -- the more pressing it will be for the Fed to act. Yet, ongoing "fiscal cliff" risks abound. Fed timidity raises the probabilities that an unleashed "risk on" finds an opening.

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