Might the Federal Reserve extend its bond purchases beyond June? What until this week was a pie-in-the-sky notion is suddenly fair game for market speculation.
The triggers have been many.
The latest one-two punch came from reports on Wednesday showing both a sharp deceleration in private sector hiring and a slowdown in manufacturing.
Compounded with weakness from China and Europe, the news was enough to knock stock prices — a key beneficiary of the Fed's ultra easy policy — more than 2 percent lower. The Standard & Poor's 500 index suffered its worst day since August.
Most Fed watchers still see a third round of quantitative easing, or QE3, as a very remote possibility. The obstacles this time around are greater, since inflation has been creeping higher and the jobless rate, while still at an elevated 9 percent, has come down quite a bit in recent months.
"It's highly unlikely, but never say never," said Jim O'Sullivan, chief economist at MF Global.
The Fed would also prefer to avoid reliving the domestic and international furor its second round of bond buys unleashed. Though Fed officials would rather not admit it, the criticism has weighed on their decision-making.
When the central bank embarked on the $600 billion round of Treasury bond buys, Republican politicians, some economists, and even a couple of top Fed officials cautioned that the measure, aimed at keeping borrowing costs down and stimulating the economy, would not work and risked sparking inflation.
Policymakers in emerging economies, for their part, argued the measures were a thinly veiled effort to weaken the dollar and boost U.S. exports at their expense. They bemoaned the rise in currency values and capital inflows that ensued.
"The political hurdle for further asset purchases is tremendously high," said Michael Feroli, chief U.S. economist at JP Morgan.
Fed officials worry more stimulus might yield diminishing returns, which in turn might dent market confidence in their ability to support growth.
They also fear the unknown. No matter how much confidence they publicly express about their ability to withdraw the unprecedented monetary stimulus provided during the crisis, many have expressed trepidation about the size of the central bank's balance sheet, now a record $2.76 trillion.
There is a pervasive sense that the more policymakers do the less they achieve — and the trickier an eventual exit becomes.
"We've gone from too little liquidity to too much," said Richard Fisher, president of the Dallas Fed, last month.
Still, it is a testament to just how disappointing the economy's performance has been that talk of exit strategies, which until recently was quite lively, has all but evaporated.
Hawks like Fisher will have a tougher time convincing their colleagues to start thinking about removing accommodation if economic conditions are not improving.
So where does the stalemate leave the Fed? Probably in a steady policy mode for the foreseeable future. It could take months if not longer for the data to deteriorate enough to make a compelling case for a further round of easing.
More importantly, the weakness needs to filter through into inflation numbers. Last year, when QE2 was under discussion, many inflation measures appeared to be hinting at the potential for a dangerous deflation.
Now, inflation has moved closer to where the Fed would like to see it, making it more difficult to justify further opening the monetary spigots.
Asked why the Fed was not being more aggressive in reducing unemployment at his first-ever news conference in April, Fed Chairman Ben Bernanke said: "The tradeoffs are getting less attractive at this point."
Still, if the economy's soft patch turns into a hard landing, inflation measures could risk drifting lower again and that could change the Fed's calculus.
Would there be any appetite for targeting alternative instruments, such as municipal debt or corporate bonds? Doubtful. Such interventions would only open the Fed to renewed accusations that it has crossed the line into fiscal policy.
The Fed's first line of defense is likely to be verbal, with policymakers underscoring a commitment to keep an easy policy in place for a prolonged period, which could help lower borrowing costs now.
Bond markets were already doing some of the heavy lifting. On Wednesday, the yield on the benchmark 10-year Treasury note slid below 3 percent for the first time in nearly six months as investors began to ponder the prospect of more easing.
"The U.S. economy is hitting the brakes at exactly the wrong time for the Federal Reserve," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
"With the expected end of QE2 within reach, the U.S. economy is in a situation where its only form of life support is about to be ripped away from it."
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