Fed's next move

After Bernanke stressed that the U.S. economy is not in a good shape in front of the Congress, there are rising speculative expectations for an additional expansion of Fed's balance sheet.

While I think the Fed can afford another QE, there seems to be a major dilemna between two forces : Real economy and the financial sector

If you look at the economy, the two mandates the Fed is given, unemployment rate and inflation, provides foundations for another move.

However, if one looks at the financial sector, the Fed seems to have little to no reason to take further actions.

First, the S&P is in a high level. Bear in mind that the Fed never eased when the index was above 1,400.

Second, the Treasury rates are very low. The reason for easing is to lower the rates. But already at a historic low level, there is little to gain from further easing, and the European situation will only get worse, adding downward pressures to the Treasury yields.

I think the Fed will keep lure in investors with a potential QE, while actually not delivering it.

So far, the Fed's strategy worked exceptionally well; whenever there were negative economic data released, the market edged up with a hope that the Fed will move further, limiting downside movements.

I wonder until when this strategy can work, especially given that the US debt ceiling talk is being discussed again and the Eurozone seems to be in a very precarious state (Spain's 10-year Treasuries are above 7.2% and the enactment of the ESM is being delayed by the German court.)