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.

  1. Chet Stedman says

    I definitely think they are using this as a proxy. Thus far it seems believe it is already in the market, myself included. Now if it has been and the Fed comes out and says well were not really sure and the market is not impacted people may look around and think that it really hasn’t been priced in yet and there will still be a huge initial impact. However if the markets were to change course the Fed would look at the impact’s of the statements and better acknowledge the consequences of not doing QE2. I think there will be additional posturing like this in the upcoming weeks.

    My only difference is I think the Fed is hoping for buy the rumor, then buy on the news again.

  2. Susijumala says

    I agree. There’s so much speculation for the events that takes place nearly a month from here. Someone is alrady skipping the question will QE2 actually happen: they discuss how much it will be. Polls are saying that it’d would be somewhere between $500 billion and $2 trillion, but even $6-7 trillion are speculated (

    What these speculations have been doing is the rapid fall of dollar. Rumours have become expectations and what a stealth weapon it is during the era of beggar-thy-neighbour? FED has not intervened, but everyone acts like it has happened already. It reminds me…

    I think people needs cooler heads.

  3. Element says


    If you haven’t read this yet, do:

    “Deconstructing POMO [Permanent-Open-Market-Operations] As Fed Becomes The Second Largest Holder Of US Treasurys In The World” – by Tyler Durden on 10/06/2010 zerohedge

    How about those apples?

    All talk of economic theory, policy options, political games or even the pantomime of ideology are moot, at this point, courtesy of Fed’s POMO manipulation of every market-economy-ish thing during the past 5 years or so.

    Sorry to bring it to attention as I’m sure it doesn’t sit well with you, or anyone else. It vaguely reminds of the Sopranos.

    Welcome to the ‘Clayton’s’ MMT market-economy?

    The market you’re having when you aren’t having a market.

    > wizard > curtain > lever > swindle > wizard > curtain > lever > swindle > wizard >

    BTW, I think I may have just converted to ‘Real-Bills-Doctrine’.

  4. Charles says

    Even the Fed’s Yellin discussed that hazards of low rates on Monday. Still, stocks are moving ahead, the dollar is falling, commodity prices have jumped, which all shows that the markets are expecting an announcement at the November meeting.

    No announcement and we’ll see some market action.

Comments are closed.

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