With bad economic news piling up, it’s looking more and more like QE3 is just around the corner. Federal Reserve Chairman Ben Bernanke certainly left the door open after the annual Jackson Hole symposium late last month. “(We have a) range of tools that could be used to provide additional monetary stimulus,” Mr. Bernanke.

And the speculation is that an announcement of some sort will come as soon as Sept. 21 at the conclusion of the Federal Open Market Committee (FOMC) meeting. Rather than buying up even more short-term treasuries, though, analysts believe the Fed could announce plans to sell off short-term notes to buy longer-term bonds. The move’s been dubbed “Operation Twist” (per Bloomberg) because the ultimate goal would be twisting the yield curve, so that short-term rates rise while long-term rates fall. That would drive down interest rates on big-ticket items like cars and houses.

It’s not much in the way of stimulus, and some economists believe it may just be a delay tactic by the Fed to give the impression that they’re “doing something” before a full-blown, large-scale QE3 gets announced later in the year or early next year.

The danger, of course, is that the Fed could wait too long. By then, it may be “too little, too late.” And that’s exactly what the so-called Dr. Doom economist Nouriel Roubini has been arguing. Roubini believes that once the Fed finally moves to start a full-blown intervention (QE3), it will target ailing state and local governments. He just doesn’t think it’ll be enough to prevent another recession.

My gut’s telling me that the Fed could surprise a lot of people on Sept. 21 (including Mr. Roubini) by announcing aggressive new forms of monetary easing. The bad news has just gotten too bad to ignore without watching the U.S. slip back into another recession.

Friday’s jobs report led to another sell-off in the stock market when the government showed zero job growth in August. That goose-egg for job growth shows we’re flirting not with the prospect of slow growth but a shrinking economy that could edge toward double-digit unemployment again.

It’s hard to underestimate the impact jobs have on a consumer-oriented economy. Without jobs people don’t have income to burn. And turning around the job situation is like navigating a gigantic boat with a single oar.

Mr. Bernanke himself has said in the past that it would take a year of 5 percent economic growth in the U.S. to lower the unemployment rate by a single percentage point. Since we’re a long way from 5 percent economic growth, it’s hard to believe the president and congress isn’t putting pressure on the Fed to act. There’s too much at stake. And that’s got me convinced we’re going to see QE3 sooner rather than later.

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Tags: Ben Bernanke, Federal Reserve, Nouriel Roubini, QE2.5, QE3, quantitative easing, Unemployment

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