Is QE3 Coming this Thursday?

People have been clamoring for QE3 for more than a year. Now it seems the noise has reached a fever pitch.

UBS (NYSE: UBS) joined the list of market forecasters predicting that the Federal Open Market Committee (FOMC) will announce a third round of quantitative easing at its monthly meeting this Thursday. JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS) had previously predicted that the Fed would take action this week.

Many are viewing last Friday’s jobs report as the tipping point.

Only 96,000 nonfarm jobs were added in August – almost 50,000 less than this year’s monthly average. And though the unemployment rate was trimmed from 8.3% in July to 8.1% last month, the number was artificially inflated by an estimated 368,000 people giving up on their job searches. Participation in the U.S. labor force has now reached a 30-year low.

The report was disappointing enough that many economists now believe Ben Bernanke and the Fed will be compelled to finally implement a third round of quantitative easing.

Quantitative easing is a monetary policy through which the Federal Reserve buys billions of dollars of Treasury bonds and mortgage-backed securities to stimulate economic growth. Quantitative easing is typically utilized when other stimulus measures – such as near-zero interest rates and Operation Twist – fail.

Interest rates have been near zero for several years now. Operation Twist – a Federal program through which the Fed buys long-term Treasury bonds and sells short-term Treasuries – was implemented last September and extended this June. Neither measure has done much to lift up a struggling U.S. economy.

So, as with QE1 in late 2008 and QE2 in late 2010, a third round of quantitative easing may be the Fed’s last resort.

Bernanke has been hinting at QE3 for months. With the chorus in favor of it growing louder by the day, perhaps this is the week he’ll take action.

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