News this past week
- US Fed strikes dovish tone
- US economic data improves
- US Dollar weakens
- Eurozone experiences modest price inflation
- UK economy grows 2.1% in 2015
James Klempster, CFA shares his view:
While it had been used before, Quantitative Easing (QE) really only came into our collective consciousness when the US Federal Reserve first used it post the financial crisis. The purpose of QE is to firstly support or push the prices of assets higher, which in turn results in an enhanced feeling of wealth for the holders of those assets and secondly, because many of the purchased assets were fixed income securities, QE served to pull down interest rates. This rendered low risk fixed income assets unattractive in terms of their total returns, which pushed investors into riskier assets in search for better yields. QE is now a cornerstone of central bank extraordinary monetary policy, and has been used to great effect. Yet recent activity by the Bank of Japan (BoJ) and European Central Bank (ECB) has placed increasing reliance on negative interest rather than relying solely on tried and tested QE.