Saturday, November 1, 2014

Economy: Quantitative Easing R.I.P

(Drivebycuriosity) - Last week the Fed announced the end of Quantitative Easing (QE), their huge bond buying program to stimulate the economy. It is a wise decision. QE had served us well.  It helped to break panic & pessimism, which had paralyzed the economy after the recession 2008, and to restart the US economy.  But now we don`t need it anymore. The US economy is on a sustainable growth path, driven by climbing company profits, a growing job market and a recovering industry. No wonder that US stocks rallied after the announcement.

OE didn`t bring inflation, contrary to the claims of the Fed critics. But it had been used as an excuse for many hedge funds and other speculators to buy oil and other commodities. The falling oil prices in the recent weeks may be partially the result of the tapering, the gradual reduction of the monetary stimulus in the past months.

The end of QE is necessary to keep the commodity speculation at bay. A day after the announcement commodity prices plunged: Crude oil (WTI) dripped 1.4%, Gold dropped 2,2% and copper fell 1.4%.  Cheaper commodities are a welcome stimulus for the economy, because consumers & companies need to spend less for oil, metals & food. Despite terminating QE the Fed is still committed to extremely low interest rates. Therefore the almost inflation free advance of the US economy should continue.

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