(By Gigi Sukin) When you hear the word "dreary," perhaps you imagine a slow motion, sunless day.
Not the ideal adjective to describe the current state of the market.
But with the Standard & Poor's 500 Index falling to its lowest level in two months, Bloomberg noted that Pacific Investment Management Co.'s Bill Gross and Goldman Sach's Jan Hatzius have both said investors should prepare for a third round of quantitative easing as the Fed attempts to combat a "dreary" U.S. economy.
The prospect of QE3 has become more likely following a May 4 Labor Department report showing U.S. employers increased by only 115,000 jobs in April, the fewest jobs added six months.
Gross, who manages PIMCO's Total Return Fund, the world's largest bond fund which has already returned 4.8 percent this year, beating 98 percent of the competition according to Bloomberg data, tweeted earlier in the week that he believes the Fed will soon begin buying bonds again.
The general consensus at this time though is that the likelihood of QE3 remains dependent on future economic data becoming dour.
Chief economist at Goldman Sach's, Hatzius, however forecasts the Fed will announce its additional easing during its June meeting, calling it "a sensible choice for U.S. monetary policy makers."
The central bank has already bought $2.3 trillion worth of bonds during the first two QE programs that occurred from December 2008 to June 2011. In addition, next month $400 billion of short-term Treasuries will be replaced- with longer-term debt holdings to maintain low borrowing costs.
Still, some are unsure QE3 will provide the boost the market needs.
Fed Bank of Dallas President Richard Fisher, a well known "inflation hawk" and vocal opponent to any further Fed bond buying, said that a drop in equity prices does not provide license nor reason for the central bank to intervene.
"The key to success here is not further monetary accommodation. Markets are manic depressive…" Fisher responded when asked if the economic decline and lagging employment gains had changed his outlook.
Furthermore, Fed Bank of Richmond President Jeffery Lacker agrees. On May 7, he asserted that a stimulus package can't salvage structural weakness in the job market.
Still, although the decline in the American unemployment rate is due almost entirely to the number of individuals dropping out of the labor force, the jobless rate is at 8.1% currently, the lowest we've seen in three years.
Looking on the bright side: here's to "April showers bringing May flowers," turning true to eliminate the economic dreariness.
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