To QE, or not to QE

Jan 22, 2020 | Jay Zhang


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That is the question investors are pondering as a record run for U.S. stock markets in recent months has coincided with the first expansion of the Fed’s balance sheet in years, raising concerns that risk asset rallies are being fueled by the Fed

For the first time since 2014, when the Fed ceased its third round of quantitative easing (QE) via asset purchases of Treasuries and mortgage-backed securities, the Fed’s balance sheet is once again on the rise. Since last September, the Fed’s balance sheet has grown by almost $400 billion, while the S&P 500 has rallied by nearly 13 percent, setting 34 new record highs in the process.
Naturally, skepticism abounds with respect to the legitimacy of this latest rally, as it has correlated nearly perfectly with the expansion of the Fed’s balance sheet—while debates centered on whether the Fed’s latest round of asset purchases is a form of “quantitative easing” that is boosting markets rage on.

 

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