QE3??

The debate has started amongst the Fed Reserve members as to whether they will or won't QE3? It's interesting to see this debate take place in public. Are they just telegraphing their votes to the markets so that there is no surprise? I suspect they are.

Bill Gross of PIMCO, correctly points out that without the aid of the Fed rates should be at least 1.5% higher. Then he tells the world he has sold all his holdings of government treasuries. Long terms rates are going up - it's just a question of time.

http://www.pimco.com/Pages/Two-Bits-Four-Bits-Six-Bits-a-Dollar.aspx

Bill says:
"As a counter, one would argue (and I would partially agree) that the U.S. and indeed developed global economies must keep yields artificially low for some time if post Lehman healing is to take place. But that of course is the point. By eliminating QE II, the Fed would be ripping a Band-Aid off a partially healed scab. Ouch!  25 basis point policy rates for an “extended period of time” may not be enough to entice arbitrage Treasury buyers, nor bond fund asset allocators to reenter a Treasury market at today’s artificially low yields. Yields may have to go higher, maybe even much higher to attract buying interest."

Meanwhile in Europe the talk is getting tough by the ECB that they will begin raising rates later this year.

I'm speculating, but QE3 in some form is highly likely. Markets are not sure and volatility is starting to increase. The next couple of months are going to get interesting.