One disappointing report doesn’t ensure the Fed will do a third quantitative easing (QE3) but it certainly keeps a third round in the offing. Better economic indicators and the rising stock market since the beginning of the year had turned a bit worrisome for the equity markets since the current sentiment favors easy monetary policy.
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An increase in interest rates or other restrictive measures can stifle a market rally—and a shaky economic recovery. Conversely, too cautious a stance by the Fed can exacerbate the situation and have a similar effect. Hopes spurred by favorable reports can create expectations which are too lofty, then disappoint, setting the stage for either a sell-off or market volatility.
The disappointing report could simply be the exception
in a recent slate of favorable reports. The single month report is not expected to have much of a bearing on Fed policy at this point, but it could become a factor depending on how healthy other economic indicators continue to be.