Global Unrest Unlikely to Prompt QE3

Powerful countervailing forces are at work in our economy. To the negative: the recent sharp increase in oil prices, the possibility of spreading unrest in the Middle East, the depressed housing market and the glut of distressed mortgages yet to be resolved, widespread local and state government fiscal shortages and a nation increasingly mindful of the growing national debt and with diminished desire for any more government intervention. To the positive: improving GDP and employment growth, continued stimulation of the economy over the next six to nine months via the second quantitative easing (QE2) by the Fed  implemented last year, extended tax cuts, improved liquidity in the capital markets, pent-up corporate demand, as-of-yet tame core inflation and increasing global demand for U.S.-made goods and services.

It appears that these forces will combine to enable moderate growth in 2011 (GDP growth of approximately 3% and job growth of approximately two million, or 2%), with accelerated growth in 2012 as confidence returns to the marketplace. This means the Fed is unlikely to take further action upon expiration of QE2 in June. This is raising some concerns among investors, particularly those worried about rising interest rates over the long term.