“Fever” quickly subsiding. That´s bad news

On the wake of the QE3 announcement stocks and inflation expectations jumped. But it was a short run move, with levels falling back to where they were just before the announcement. That´s maybe why Chicago Fed Charles Evans is “crying for more”.

Mr. Bernanke, “when will you ever learn”?

5 thoughts on ““Fever” quickly subsiding. That´s bad news

  1. I have a question about the expectations channel, and I’m sorry if it requires a little bit of reading the tea leaves… But a while back Lars Christensen had a post about excess demand for dollars/dollar assets from Europe in the thick of the 2008 crisis being a possible cause of the collapse in NGDP in the US. I don’t know if you agree with that or not, but it seems plausible that there is some kind of pan North American/Europe market interaction going on that includes expectations in one region playing off the other, as in when Draghi announced his bond plan as a possibility, markets improved everywhere, but didn’t seem to budge as much as I thought they might when QE3 was a go. So if Draghi’s plan doesn’t work because Spain doesn’t want bailout conditions, that would mean that QE3 needs to appear to be a supercharged bazooka or is it something that Fed might have a real problem dealing with?

    • Every country demanded dollars in the thick in late 2008. Since the Fed didn´t accomodate, yes that helped crash spending.
      The world economy is “linked” fairly tightly. Draghi has been incresing (or trying to) the force of his “missiles”. Bernanke too, but they´ve wasted a lot of time being timid. So now, to really make a difference they have to really send out some very strong stuff. QE3 seems to be already languishing.

      • I see. So the main thing Bernanke and the FOMC need to do is be sure that some kind of euro meltdown doesn’t effectively tighten policy in the US. It probably would be a much easier task if they had committed to NGDP targeting instead of stopping somewhere between here and there.

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