How Much Will QE Raise Markets?

Olympic Calm Before Coming Financial Storm | ZeroHedge.

The author believes that gold prices will rise more once QE is announced. I think that they won’t rise much, and I believe this to be true of all the financial markets. Once the Fed and the ECB started the summer jawboning on June 28, investors began frontrunning them resulting in a rally for the last six weeks or so.

It seems to me that most of QE is already priced in. If the market fails to rally on the announcement in September, things could get bad in a hurry.

Advertisements

One thought on “How Much Will QE Raise Markets?

  1. The market will rally when it believes that the ECB/Fed understand the problem. The problem is that we are in a demand side recession. Central banks control aggregate demand, so through QE they can raise demand. They should have engaged in aggressive monetary stimulus, and we could have avoided five years of depression. Market are basically predicting global macroeconomic conditions, QE led to rallies as market participants believed that they indicated that the central banks would act aggressively to fix the problems. Now particpants understand that the FOMC and the Bundesbank are hard money lunatics who will allow QE only when disaster is imminent, so the markets will not rally.

    The correct indicator of monetary policy is NGDP. Appropriate policy in a demand side recession will return NGDP (and hence demand) to its precrisis trend and so avoid an output gap. We have spectacularly failed to do that.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s