To QE or Not To QE, That Is The Question
Wouldn’t it marvellous if the Fed could get the positive effects of quantitative easing on asset prices without actually having to ease? This whole debate about QE in the United States has been driving asset markets higher (both bonds and stocks). Gold is higher and the dollar is lower. Yet the Fed hasn’t actually done anything. Is this a case of buy the rumour and sell the news? I think so – especially because, despite all the jawboning about QE and inflation targets, the Fed still seems resistant to go down this path.
For instance, James Bullard of the St. Louis Fed, the man who started us on this journey with his Seven Faces of the Peril bit, recently came out saying in effect hold the phone, we haven’t even decided to do QE, folks.
Federal Reserve officials could wait until December before making any decision to ease monetary policy further if they feel they need more clarity on the outlook, St. Louis Fed President James Bullard said on Friday.
"We did hit this soft patch in the economy but it’s not so soft that it’s obvious that you have to do a lot right now," Bullard told CNBC. "It’s still possible to make the case that the economy will improve naturally."
That’s not intra-meeting, my friends. That’s not even November 3rd. So Bullard is backpedalling it sounds like. See the transcript here. Then you have Richard Fisher of the Dallas Fed writing a piece called: To Ease or Not to Ease? What Next for the Fed? Doesn’t sound like he’s 100% on-board. And we know that Plosser and Hoenig are not on-board. So who does that leave us with: Yellen, Bernanke and Dudley? Are they going to win this one.
Markets are still rallying as we speak. To my mind, this speaks to the power of Open Mouth Operations because the Fed hasn’t done anything yet.