Questioning Quantitative Easing

Speculation over the reduction or expansion of quantitative easing largely amounts to market noise.

April 23, 2013    |    By Scott Minerd

The continuing deflationary environment gives policymakers leeway to keep monetary conditions easy.


Global CIO Commentary by Scott Minerd

The majority of recent economic data has come in below expectations, which has opened the door for discussions about the possibility of more quantitative easing (QE). Only three weeks ago, the market was concerned over the possibility that the asset purchase program could be tapered. Now, however, with the arrival of weak economic results and ongoing global economic headwinds, we are seeing investors’ bias shift. The market is moving from fear over the reduction of QE to prognostications over the extension or expansion of it.

Fueling this shift in sentiment is the recent statement by the president of the Federal Reserve Bank of St. Louis, Dr. Bullard, who said that QE could be increased. This message was meant to convey that the Fed’s policy is dynamic enough to work in any market environment. It appears as though there will be speculation about the impacts on QE each time we receive a new piece of economic data or news. All of this largely amounts to noise and the more important takeaway is that QE will last through the end of this year, and possibly into next year.

Commodity Prices Weigh On Inflation Expectations

The recent sell-off in global commodities has dampened U.S. inflation expectations. The breakeven rate on 5-year Treasury Inflation-Protected Securities (TIPS) has fallen by 48 basis points over the past month. The last time inflation expectations fell to this level was during the announcement of the latest stimulus program by the Federal Reserve. This decline, combined with the weaker economic data of the past few weeks, has eased pressure on the Federal Reserve to taper or end its current stimulative programs.


Commodity Prices Weigh On Inflation Expectations

Source: Bloomberg, Guggenheim Investments. Data as of 4/19/2013. *Note: The 5-year inflation expectation is the difference between the nominal 5-year Treasury yield and the 5-year inflation-protected Treasury yield.

Economic Data Releases

Housing a Bright Spot Amidst Overall Disappointing Data

  • The leading indicator index fell for the first time in seven months during March, with five of the 10 components down.
  • Existing home sales unexpectedly dropped -0.6% to a 4.92 million annualized pace in March.
  • New home sales rose 1.5% to a rate of 417,000 in March, making the first quarter the best since 2008.
  • The FHFA House Price Index climbed 0.7% in February, marking the 13th consecutive month of increasing prices.
  • Initial jobless claims for the week ended April 13th increased slightly from 348,000 to 352,000.
  • The Chicago Fed National Activity Index fell to -0.23 in March, a larger-than-forecast decrease. The Philadelphia and Richmond Fed indices for April were also down unexpectedly.
  • The Markit manufacturing PMI fell in the preliminary April reading to 52.0.

Slowing Signs of Economic Activity Across Europe and China

  • The eurozone’s composite PMI was flat and manufacturing decreased in the April advance reading. Germany’s manufacturing PMI indicated accelerating contraction in April at 47.9 and services also slipped into contraction. French PMIs beat estimates, but remained in contraction.
  • Eurozone consumer confidence improved in April to -22.3, the best result since July 2012.
  • French business confidence declined for a second consecutive month.
  • U.K. retail sales fell 0.7% in March, and the unemployment rate rose to 7.9%.
  • Japan’s trade deficit narrowed in March to the lowest level since last June’s surplus.
  • The HSBC China manufacturing PMI fell more than expected in April to 50.5.


February 21, 2018

Fixed-Income Outlook: Walking the Risk Tightrope

Current conditions could persist for some time, but with a possible recession approximately two years away, the time for caution is approaching.

February 20, 2018

The Market Is Finally Getting the Joke

Investors are coming to terms with the idea that the Fed will keep raising rates because of inflation and economic pressures.

January 23, 2018

Davos as Contra-Indicator

Euphoria at Davos may be a sign that the market melt up may soon begin to cool.


Forecating the Next Recession 

Forecating the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”

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