The volatility in last week’s markets suggests that Wall Street isn’t prepared to move ahead without its monthly stimulus injections of cheap money. The declines in nearly every element of the stock market, even globally, have led to much speculation that the Federal Reserve would introduce a fourth round of quantitative easing.
Although nothing is certain and United States central bank officials aren’t confirming its intentions, top policymakers have yet to actually rule out the possibility of another initiative of bond acquisitions, which would further expand its balance sheet beyond the current $4 trillion.
First example is Boston Fed President Eric Rosengren, who told Reuters that the central bank should invoke patience with its monetary policy and tie the current interest rates to improving economic conditions. Rosengren said the market volatility won’t adjust the Fed’s monetary policy as it should maintain a focus on inflation and wages.
He added that rates in 2016 could still stand at zero.
“Patient monetary policy probably makes sense. Certainly the events of the last couple of weeks probably give some credence to thinking about being patient as well as trying to process some of the movements we’re seeing,” Rosengren said in an interview with the news outlet. “If it starts looking like what we’re seeing in financial markets is reflective of more underlying, real trends then there is reason for being more patient (on policy). I don’t think we have that evidence today.”
Indeed, the Fed policymaker did a lot of talking, but he did not rule out QE4.
Next, St. Louis Federal Reserve Bank James Bullard spoke with CNBC and argued that the Fed needs to maintain its monthly bond-buying program to hone in on its inflation target of two percent – of course, he used inflation as an excuse for the substantial declines in the market.
Economists are even hopping on the continuation of stimulus bandwagon.
Maury Harris, an economist at UBS Investment Research, told the same business news network that he thinks Fed Chair Janet Yellen could surprise everybody and announced that it is extending its bond acquisitions longer than previously intended.
Another interesting element of this talk is the pundits urging the Fed to maintain or expand the current round of QE. For instance, the Globe and Mail wrote Sunday that “going cold turkey on quantitative easing isn’t the best idea.”
Everyone realizes that Wall Street can’t survive solely on its own without its monthly injections, but no one is admitting it. The punch bowl was spiked years ago and now markets will continue to need their fix of cheap money, low interest rates and bailouts. Creating money out of thin air seems like the only method to keep this charade going.
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