Economy: QE3 Exit - The First Achievements

(Drivebycuriosity) - Last week the financial markets worldwide experienced some turbulences. The dollar exchange rate rose and the prices of stocks & bonds tumbled. This was a quick response to Federal Reserve Chairman Ben Bernankes´s announcement that the stimulus program QE3 will run out through mid 2014 (tapering).

I embrace this announcement. As described recently (drivebycuriosity), massive stimulating measures aren´t necessary anymore and could lead to an overheating in the future.

In the aftermath of the tapering announcement we experienced the first achievement, at least we got a taste of it. The prices of oil & gold dropped sharply after Bernanke´s statement (bloomberg marketwatch).

Cheaper oil is a relief for consumer who have to pay a bit less at the gas pump. Hence they have more money to spend for other goods which could be a boost for retailers & other consumer companies.

A falling oil price also translates into a further moderate inflation rate. Hence I expect that interest rates rise less than the market fears because high interest rate are usually a result of a high & rising inflation rate.

The crash on the gold market is another positive effect. In the recent years many people had parked billions of dollar in this unproductive metal. As a result of the massive sales of gold this money could pour into the economy and into stocks leading to more economic growth and a further rise of the stock market.