Is QE4 coming and what will it do?

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Is QE4 coming and what will it do? Let’s begin with BofAML via FTAlphaville:

Screen-Shot-2015-10-09-at-12.38.53-PMThe story of the year so far may be that of a negative feedback loop leading to a bad equilibrium. First, risk assets sold-off expecting the Fed to tighten. Then, the sell-off went too far and started affecting the real economy, including in the US. Now, the Fed is not tightening as a result. However, postponing Fed tightening does not necessarily increase the demand for risk assets. We are oversimplifying, and there are certainly many other things going on, but it helps make the point.

This appears to be a new regime, in which bad news is bad news, as we wrote a year ago and reiterated recently… Fed QE does not appear to be coming to the rescue anymore. The Fed staying on hold can support risk assets in the short term, but is not as strong as QE. This is an environment with high market volatility, as the so-called central bank put is less powerful without Fed QE. ECB and BOJ QE apparently cannot do the trick. Bad news is supposed to be bad news and this should be a healthier market than before, but the adjustment back to normal has not been, and in our view is not going to be, easy.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.