By keeping short-term rates the same or higher this time, the dollar would likely stay strong, said investors, and help Bernanke fight back against the biggest criticism of his last quantitative easing plan: the surge in commodities.

"QE3 now seems unavoidable in the context of a widening output gap in H1, a broad-based stall of employment growth and forthcoming increasing drag from fiscal policy," according to a piece by the economic team at Nouriel Roubini's research firm, Roubini Global Economics. "A significant balance-sheet expansion may be a hard sell in H2 2011, with core inflation indexes staying steady through the end of the year. That said, extending the maturity of the Fed's holdings seems more plausible, and indeed would address QE2's key shortcoming-that the program did little to counter the lengthening maturity of outstanding Treasurys."

Roubini's team is referring to another key document being passed around by traders these days, Bernanke's Semiannual Monetary Policy Report to the Congress on July 13.

"On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support," said the Fed Chief before recent economic data would prove him right. "Even with the federal funds rate close to zero, we have a number of ways in which we could act to ease financial conditions further. One option would be to provide more explicit guidance about the period over which the federal funds rate and the balance sheet would remain at their current levels. Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings."

Other options for the Fed chief that have been suggested by traders is cap treasury rates, something not done since the 1940s. Other strategists say don't do anything, this is Europe's problem and our own easing will just dig us deeper into a whole we would have to unwind one day.

"Another Fed option is to sell puts on Treasury futures," suggested Brian Kelly of Brian Kelly Capital. "It would not take a lot of money and it would cap rates."

"But you know what would really help?" Kelly added. "The Fed could buy single-family homes."







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