The negative market reaction to signs that the Federal Reserve is unlikely to take part in more quantitative easing soon has led to worries that the market rally will fade.
Markets have rallied this year after the Fed’s Operation Twist and two rounds of liquidity injections from the European Central Bank. Some had expected a third round of quantitative easing from the Fed later this year, but these hopes were dampened by the news that only two of the Fed’s 10 board members backed further easing at its most recent meeting.
“Markets are only going up because of central banks’ extraordinary measures and the underlining economy is struggling with severe headwinds,” Stewart Richardson, partner at RMG Wealth Management, told CNBC Wednesday.
“If we don’t get any more QE from the Fedor LTRO from the ECB , markets will take a step back and reassess why they’re going up.”
He warned that recent U.S. economic data has been buoyed by the weather and seasonal variations, and data in coming months may show “stall speed”.
Others argue that recent U.S. data suggests that the massive amount of cheap money pumped into the economy has revived it enough.Page 1 of 3 | Next Page