The headlines after Fed Chairman Bernanke testified on June 7 said "no hint of QE3," which clobbered the precious metals markets. But sometimes headline writers don't read the text carefully, or even go with their pre-written headline. Look at what Bernanke actually said:
"I think the key question that we'll be facing will be - will economic growth be sufficient to achieve continued progress in the labor market?"
He then cautioned that the large employment gains seen around the New Year could be the result of hiring by businesses that had aggressively cut back on workers during the recession, and if that is the case, "more rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions."
How will he achieve " more rapid gains in economic activity?" He said that Fed officials and staff were working on new economic projections, and the question of additional action would be discussed at the Fed's next committee meeting in two weeks.
When asked if that "additional action" could include QE3, he said: "At this point I really can't say that anything is completely off the table."
He also said that Europe's debt crisis "poses significant risks to the U.S. financial system and economy and must be monitored closely" and that "more will likely be needed to stabilize euro-area banks, calm market fears about sovereign finances, achieve a workable fiscal framework for the euro area, and lay the foundations for long-term economic growth."
And, of course, "the Federal Reserve retains the right to protect the American financial systems by any means necessary."
Finally, his choices are not constrained by fears of inflation. He said inflation is likely to remain at or slightly below the 2% rate that the Fed targets, and that increases in the price of oil and other commodities "are unlikely to result in persistent increases in overall inflation."
That may be "no hint of QE3" to the headline writers, but to me it is pretty clear that if the new economic projections are a downward revision - and how could they not be? - we're going to see "additional action."
And when he says more is needed in Europe, you can bet he'll back that up with as much credit as necessary even if it is under the table. He just is not worried about what I'm worried about: Inflation.
I expect to see a "surprise" Fed action at the June 19-20 meeting and press conference.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.