The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.

QE II floats only some boats

The Federal Reserve’s first huge injection of liquidity surely helped avoid a horrible depression. The outcome of this second phase is more doubtful. If unemployment is structural, the Fed’s effort might be wasted. Worse, it might be inflating asset bubbles once again. Peter Lee reports.

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.

Ben Bernanke, Federal Reserve chairman

"Financial conditions eased notably in anticipation of the [Open Market] Committee’s announcement [of QE II], suggesting that this policy will be effective in promoting recovery"

Ben Bernanke, Federal Reserve

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.

Take out a complimentary trial

Take out a 7 day trial to gain unlimited access to and analysis and receive expertly-curated updates direct to your inbox.


Already a user?

Login now


We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree