If the S&P 500 broad stock index falls between 100 and 200 points, the Federal Reserve will unleash a third round of quantitative easing, an ultra-loose monetary policy designed to kick-start economic growth, says Marc Faber, publisher of the Gloom, Boom and Doom report.
"(QE3) depends on the S&P, if the S&P drops 100-200 points, then yes, for sure we will have QE3 but if the S&P stays here or even goes up, the likelihood of QE3 diminishes," Faber tells CNBC.
The S&P is up 9 percent on year.
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The Fed has already launched two rounds of quantitative easing, known widely as QE1 and QE2.
QE1 saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage securities, while QE2 saw the central bank snap up $600 billion of Treasury bonds.
Critics say the policy weakens the dollar, stokes inflationary pressure and hasn't done much to better the economy anyway, as unemployment remains high and consumer spending and growth lackluster.
Supporters say the policy steers the economy away from deflation and aims to boost hiring via keeping pushing interest rates low and stock prices high.
"Bernanke targets asset prices, he doesn’t admit that, but he doesn’t want asset prices to go down," Faber says, pointing out QE1 and QE2 pumped up stocks in 2011.
"The S&P went up from 666 on March 6 2009 to 1,370 [currently] so it has more than doubled and that has to do with QE1 and QE2," Faber says.
Fed Chairman Ben Bernanke recently told Congress that the economy was not performing as strongly as it should but made no real mention of a third round being in the cards.
"The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend," Bernanke told the U.S. House of Representatives Financial Services Committee, according to Reuters.
The markets interpreted Bernanke's lack of direct allusion to bond purchases as a sign the policy remains on hold for now.
"Bernanke implied that the Fed was no closer to QE3 ... Investors were disappointed," says Cary Leahey of Decision Economics in New York, according to Reuters.
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