Markets Crave Stimulus—Will the Fed Give Them Their Fix?

New evidence of sluggish U.S. jobs growth and dovish tones from Federal Reserve officials have pumped up expectations that the central bank could announce a new easing program after its meeting Wednesday and Thursday.

The two-day Fed meeting is the big event in a week that includes some important economic data. Retail sales data Friday is likely to show consumers increased spending in August, but inflation data could show that some of what is being purchased is just higher priced gasoline.

In addition to easing from the Fed, traders are watching for other global stimulus that helped lift stocks in the past week. China, for instance, approved 60 infrastructure projects worth $157 billion, boosting global stocks and commodities Friday that could benefit from that spending.

Meanwhile, the European Central Bank’s announcement Thursday of a bond-purchase program aimed at lowering borrowing rates for cash-strapped countries helped give a lift to risk assets, and the focus now shifts to a German court ruling Wednesday on whether Europe’s ESM bailout fund is constitutional.

The weak U.S. August employment report Friday raised the odds that the Fed could move sooner rather than later on a new asset purchase program, or QE3. Wall Street’s Fed watchers, including some who did not expect QE, now see the possibility of a new open-ended program the Fed would use to purchase a mix of Treasurys and mortgage-backed securities.

via CNBC