What Brazen Deception Will the Fed Try Next?

I’ve had my doubts that Quantitative Easing would ever be throttled back, even asserting here several times that this was about as likely as a Martian invasion. However, it would now appear that at least some nominal change in Fed policy is nigh.  For one, the news media have unleashed a torrent of ostensibly bullish recovery data that, even if it is believed by no one save editorialists, economists and Obama spinmeisters, is sufficient to provide PR cover for just a smidgen of tightening. And for two, Fed policymakers themselves have been promiscuously encouraging talk of tightening for about the last two years — talking their book, as it were.

Assuming the momentous, long-awaited announcement comes this week, we shouldn’t be surprised, if the central bank’s oh-so-clever expectations managers propose some alternative to QE that smacks of…more easing.  Suppose, for instance, that the Fed announces a reduction in the amount of ginned-up money it uses each month to mop up unwanted Treasury and mortgage debt, from $85 billion to $60 billion. If this portentous shift were to be accompanied by, say, a reduction in the amount of interest the Fed pays on banks’ excess reserves, think of how eager the banks would be to recoup all that lost, risk-free income. Why, they might even have to crank up their own printing presses with promotional lending offers that would make today’s “zero percent-loans-for-18-months!” specials look like usury.

Whatever the Fed does, its actions will be geared, as always, toward pumping up home prices and the stock market, as always. What do you foresee, readers?