There is little doubt in the markets now that the Federal Reserve once again will come to the rescue and introduce a monetary policy tool to help kick-start the world’s largest economy. What form it will take is also becoming clearer by the minute in the lead up to the conclusion of the two-day Federal Open Market Committee meeting with the most likely scenario now deemed to be a lighter form of Operation Twist, first tried in the 60s. According to Saxo Bank’s Chief Economist Steen Jakobsen, this announcement will more than likely come now and will help reassure markets that the Federal Reserve continues to take the economic predicament of the U.S. seriously. To demonstrate its willingness and flexibility to act when the economic tide hopefully turns the FOMC may also introduce nominal targets for inflation and unemployment. For now though the market might have to relate to hints of targets only and instead wait until the next FOMC meeting in November for this to materialise. Whether an Operation Twist Light together with initiatives in the Jobs Act proposed by President Obama are enough to turn the U.S. economy in the right direction is another story. But there is no doubt that the need for the Federal Reserve to act now and try to do what is best for the U.S. has increased due to the increasingly troubled global economic situation, with the Eurozone woes being a main catalyst.

For more comments by Steen Jakobsen see his blog Steen's Chronicle on TradingFloor.com