Global stock markets have been rallying on the expectation that Federal Reserve Chairman Ben Bernanke will give a repeat performance at this year’s Jackson Hole meeting and serve up a third round of Quantitative Easing. In my opinion however, markets will be sorely disappointed and his failure to announce QE3 will trigger another big selloff and a rally in the US dollar.
Don’t get me wrong, there will be QE3 but just not quite yet. Bernanke will wait till things are really bad so that he can launch coordinated fiscal and monetary stimulus along with the ECB, Bank of Japan, Bank of England and maybe even the Chinese central bank. In this scenario I expect global QE to be with us by Christmas.