Over the past eleven days, the S&P 500 has declined a little over 5%. This is now the 17th correction of greater than 5% since March 2009.

As has been the case over the past few years, this minor short-term pullback has already led to chatter of a more dovish Fed to come. Many market participants are now calling for an extension of the “considerable time” language, and if the decline should continue, a fourth round of QE in 2015.

But we just finished QE3 in October, you say, and the economy has shown positive payrolls for fifty consecutive months, the longest streak in history. Why would market participants be talking about more Fed stimulus when we just saw a monthly jobs number of 321,000?

As I outlined in a recent piece, it is not economic data that is driving Fed policy but the short-term machinations of the stock market. In the name of the “wealth effect,” to the Fed the stock market has become the economy.

We can see this clearly in looking at the Fed Funds Futures curve over the past 11 days. Expectations for 2015 rate hikes have already been pushed out, with most now expecting the first hike to occur in September 2015.

Even if we accept that stock prices are driving monetary policy, is a 5% correction really enough to generate QE4?

Probably not, if history is a guide. After the end of QE1 and QE2 in 2010 and 2011 it took declines of 17% and 21% respectively to bring about new Fed programs. Asking for QE4 when the market has only declined 5% from an all-time high seems a bit premature.

That said, this is the key market dynamic as we enter 2015, a continued dance between the short-term movements in the stock market and the Fed. As long as the Fed is targeting another bubble in stocks in the name of a “wealth effect,” we can expect this dance to continue. Should they choose to stop dancing, they will have to be prepared for market participants to stop dancing as well. I'm not sure that's something they are willing to leave to chance.