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Where's the Fed? Add to ...

Some observers are starting to wonder what it would take to move the Federal Reserve off the sidelines and say something about another round of stimulus, in the form of quantitative easing (or printing money to buy bonds). The Fed has done it twice already, and a third round -- dubbed QE3 -- isn't out of the question. But what is it going to take?

FT Alphaville found a note from the Nomura fixed-income team, which graphed what it sees as two important thresholds for central bank intervention: the three-month percentage change in the S&P 500 falling below 13 per cent and inflation expectations retreating below 2.2 per cent. Or, at least, these thresholds were enough to move the Fed that last two times. And now?

Nomura thinks that the bar might be set higher this time. While quantitative easing did help stock markets last time, its impact on durable growth remains an open question.

"Some have argued that the consequences of the form of QE used so far have been negative for global growth via higher commodity prices," they said. "Repeating the experiment in exactly the same way may not be as easy, as the discussions we have had with clients would suggest – especially now that we have hard evidence that other global market participants are nervous about fast USD weakening."

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