Markets remain in ‘QE off’ mode, with stocks down and longer term rates up.
‘QE on’ was a misguided speculative bubble in any case, as QE is, at best, a placebo, and in fact somewhat of a tax as it removes a bit of interest income.
But obviously global markets view it as a massive stimulus, as per the various market responses.
The real economy, however, continues to suffocate from a too small US federal budget made even smaller by the proactive tax hikes and spending cuts.
Yes, there is some private sector credit expansion trying to fill the ‘spending gap’ caused by the fiscal tightening, but all that and more is needed to keep it all growing in the face of the ongoing automatic fiscal stabilizers that make it an ‘uphill’ battle for the forces of non govt credit expansion.
So seems to me this all leads to lower equity prices as prospects for earnings and growth fade, and, at some point, lower bond yields as expectations for Fed rate hikes are pushed further into the future by the economic reality.
I also look for confidence readings, one of the few ‘bright spots’, to fade with the equity sell off as well.
And, at some point, ‘QE on’ ceases to matter, under the ‘fool me once…’ theory???
And should that happen, and the Fed be exposed as ‘the kid in the car seat with the toy steering wheel who everyone thinks is driving’, no telling what happens…