Business News

No QE3? Great!

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by Peter Switzer

Wall Street ended slightly negative and that was a great result! Why? Well, the Federal Reserve did not give traders the ‘sugar’ they wanted but the reaction wasn’t like a spoilt brat!

You see, many investors wanted Ben Bernanke to talk about and even give more monetary stimulus — QE3 — but instead he said the Fed would stick to more Operation Twist. This is where the central bank sells short-term bonds to buy long-term bonds, which pushes up bond prices but brings long-term interest rates down.

And while he didn’t rule QE3 out, and I think he would use it if things got desperate, he clearly wants to use it judiciously. I have argued before that it would be great for the US economy’s long-term future if it can recover without more quantitative easing, and if Europe could sort out its debt issues, I believe the Yanks could grow more strongly without adding to the money supply again.

The Dow ended down 12.94 points or 0.1 per cent to 12,824.39 while the S&P 500 finished off 2.29 points or 0.17 per cent to 1355.69.

The Fed boss changed his unemployment forecast for 2012 from 7.8-8 per cent to 8-8.2 per cent. Meanwhile economic growth was downgraded from 2.4-2.9 per cent to 1.9-2.4 per cent.

Today’s decision and the market’s reaction is a good sign but now investors need to hear some more optimistic news out of Europe.

And I liked this titbit: there are reports that the German Chancellor, Angela Merkel is becoming more supportive of the idea “that the EFSF, the euro zone rescue fund, could make sovereign bond purchases”. (CNBC)

Any decisive decision that could really help European governments see sovereign bond yields fall would be a winner for stocks.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, June 21, 2012

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