QE3 launch unlikely to make waves Ben Bernanke this week said he has "ammunition" to prevent a US economic retreat. If the markets" response was any measure, investors seem to believe the Federal Reserve chairman is loaded with the small-bore shot that bears his initials. The Fed moved to combat slowing growth by stretching out "Operation Twist," or buying long-term Treasuries while selling shorter-duration debt. More significant, the central bank reminded investors that it is willing to turn again to more unconventional firepower in its arsenal if things really go south. Experience suggests that even a hint of dry powder for a third round of quantitative easing - essentially printing money to buy bonds - should have propped up risky assets as even lower yields loom for safer securities. Instead, investors deserted equities and commodities, driving the S&P 500 down more than 2 per cent on Thursday and oil below $90 a barrel for the first time in 18 months. Like cable television viewers of the Queen's Jubilee this month, markets may have QE fatigue. The case for more action is growing. Reports released this week, from jobless claims, to the important Philadelphia manufacturing index, to results for bellwether shipping empire FedEx, sketch a grey picture. Steven Ricchiuto, Mizuho Securities chief economist, says: "There will be additional accommodation given the data that we've seen in the last couple of days." The Fed's own projections pointed to growth and unemployment below targets for the year. Its monetary policy committee statement on Wednesday highlighted declining inflation, freeing its hand to further expand money supply. Bank of America Merrill Lynch, for one, expects the launch of QE3 and a commitment to a longer period of ultra-low interest rates by September. If Wall Street handicappers are right and QE3 does set sail, how will markets respond? Weakly, many strategists say. One reason is because people are still unloading the burdens of the millennial debt bubble. Low interest rates and easy money do not necessarily make them want to borrow more or to spend more. As the Financial Times reported this week, most US homeowners are still paying above-market mortgage rates as they are either unable or unwilling to refinance. "You can have interest rates pretty low like we have and still not get a lot of bang for your buck," says Scott Wren, senior equity strategist at Wells Fargo Advisors. Second, markets are reacting to a drama outside Fed jurisdiction in Europe. Third, political paralysis in Washington has heightened worries about a "fiscal cliff" of higher taxes and lower government spending at the end of the year. Finally, the Fed's own comments suggest officials were caught off-guard as softer data emerged this spring. Capital Economics" John Higgins says a new Fed bond-buying programme could boost equities and commodities "but quantitative easing has probably lost much of its power to kindle investors" appetite for risk and foster hopes of economic recovery." It is a different script than last time. Since Mr Bernanke first dropped hints of a second round of easing in his remarks at Jackson Hole, Wyoming, almost two years ago, the S&P 500 index has risen more than 25 per cent. Meanwhile, the yield on benchmark 10-year US Treasuries, which moves inversely to the price, has dropped to postwar lows under pressure from Fed bond-buying and from haven investors seeking some place less weak than Europe in which to park cash. Mr Bernanke himself warned of diminishing returns of monetary easing in that now-famous Jackson Hole speech. "The impact of securities purchases may depend to some extent on the state of financial markets and the economy; for example, such purchases seem likely to have their largest effects during periods of economic and financial stress, when markets are less liquid and term premiums are unusually high," he said then. Extraordinary measures have the most impact in truly extraordinary times. A fresh round of QE would temporarily jolt flagging markets. But despite the costs and risks, the shock value is gone. "They have ammunition," says Mr Ricchiuto. Whether the ammunition is effective or not is a different story. A third attempt at QE may well miss the mark.