ONE MONTH AFTER the Federal Reserve Open Market Committee embarked on its latest $600 billion shopping spree in the treasuries market, it appears that the market’s anticipation of quantitative easing (QE) II generated a much stronger response than the actual experience of its implementation.
Ten-year US Treasury note yields narrowed from 3.1% in August, when the Fed began in earnest to signal its intention to expand its balance sheet further, to 2.3% in October. Alongside bond prices, the stock market also shot up, with the S&P 500 rising from 1,040 to over 1,220.
In a speech to the European central banking conference in Frankfurt on November 19, Ben Bernanke, Federal Reserve chairman, gave himself a hearty pat on the back for all this. "Financial conditions eased notably in anticipation of the Committee’s announcement, suggesting that this policy will be effective in promoting recovery."...
