Will the Fed have to trigger yet one more round of monetary easing….QE3?
*Financial Times, by Richard Milne and Dan McCrum, August 5, 2011
“Bruised investors cherish QE3 hopes
Amid this week’s turmoil, investors seemed to cling to a sliver of hope:
QE3. In the rout of the first four days of this week, US shares eked out
their one session of gains on Wednesday as markets speculated that the
Fed might be poised to engage in a third round of asset purchases, or
And while the slightly better than expected July non-farm payrolls
report might temper the pessimism in the markets, talk of QE3 is sure to
The effects of QE2, whose end in June coincided with the recent sharp
decline in global markets, are still much disputed. Many seem addicted
to the idea that QE can help.
But do the world’s largest investors really expect the Fed to rise to
”Although it is politically contentious, the probability of the Fed
announcing QE3 is increasing,”says Robert Parker, senior investment
adviser to Credit Suisse.
Michael Hintze, chief executive of CQS, the London-based hedge fund,
says:”Yes, I believe QE3 will happen because I am not sure [the Fed]
has any choice but to do this.”
The biggest reason for believing the Fed will act is the weakness of
economic growth. US GDP grew by an annualised rate of about 0.8 per cent
in the first half of the year and many analysts have pointed out that
every time it has been below the”stall speed” of 2 per cent – at least
in recent history – a recession has ensued.”
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