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19 Jun 2013
Flash: QE roiling the markets - DBS
FXstreet.com (London) - DBS Bank Research Group noted that some say a lack of guidance on QE is what has roiled markets so much for the past month. In fact, they feel the opposite is true. “There’s been loads of guidance”.
The problem, they say, if you can call it that, is that it has run every which way and this reflects the on-going debate at the Fed. Several FOMC officials, worried about inflation and asset market bubbles, spent much of May giving speeches with the message: “…It’s time to pull back on QE”.
They noted that those speeches stood in sharp contrast to the last FOMC statement on 1May, which told investors not to get ahead of themselves as regards any tapering – that the next move of the QE dial could be up, not down. Then, they say, came (NY Fed President) Dudley, reiterating the FOMC statement and setting the stage for Bernanke’s Congressional testimony on 21May. Like any good diplomat, Bernanke tipped his hat to the opposition and said tapering could come at one of the next several meetings. But then they explained that he delivered his real message: asset markets do not appear ‘inconsistent’ with economic fundamentals, inflation is low and falling and ending QE sooner rather than later would be dangerous; it could kill the recovery and lead to an extended period of lower interest rates rather than the return to normality that everyone wants.
The problem, they say, if you can call it that, is that it has run every which way and this reflects the on-going debate at the Fed. Several FOMC officials, worried about inflation and asset market bubbles, spent much of May giving speeches with the message: “…It’s time to pull back on QE”.
They noted that those speeches stood in sharp contrast to the last FOMC statement on 1May, which told investors not to get ahead of themselves as regards any tapering – that the next move of the QE dial could be up, not down. Then, they say, came (NY Fed President) Dudley, reiterating the FOMC statement and setting the stage for Bernanke’s Congressional testimony on 21May. Like any good diplomat, Bernanke tipped his hat to the opposition and said tapering could come at one of the next several meetings. But then they explained that he delivered his real message: asset markets do not appear ‘inconsistent’ with economic fundamentals, inflation is low and falling and ending QE sooner rather than later would be dangerous; it could kill the recovery and lead to an extended period of lower interest rates rather than the return to normality that everyone wants.