Will The Fed's QE 2 Program Cause a Market Downturn?

A very interesting article from the WSJ on the Fed's likely QE 2 program. As you probably know, Mr. Hilsenrath has become the man in the know when it comes to future Fed decisions. He seems to be the preferred person by the FOMC to leak information to the market. Well, he had an article in the WSJ today which mentioned that while QE 2 was guaranteed, it may not be as large as previously thought. Some estimates from Goldman and Morgan Stanley estimate between $1-4 trillion. As it turns out, the hawks on the FOMC may force Zimbabwe Ben into a compromise of only a few hundred billion. If true, this may not please the market as everyone and his brother is long risk assets (commodities, stocks, carry trade). Could this let down by the Fed lead to a market downturn? Marc Faber thinks so. At the end of the article, I have included a video of Marc Faber being interviewed by Bloomberg.  From the WSJ article:
The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.

The Fed could leave open the possibility of more purchases in the future, particularly if inflation is projected to remain below 2% and the unemployment outlook remains high, which is currently the expectation of many officials. Or it could halt the program if the economy or inflation surprisingly take off, officials have said.

Black Swan Insights

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