Shock and awe was the order of the day from the monetary policy committee on Thursday as it cranked up the electronic money printing presses and set them whirring faster than anyone expected.
So said the Financial Times.
“Meh”, said the UK stock market, which remains firmly stuck in a rut since the beginning of August:
FTSE 100. Source: Bloomberg
The markets are not pricing in an expansionary boom from this move. Maybe they are wrong, of course. But it is hard to imagine why we should settle for anything less, given the depressed state of the economy:
UK Employment Rate
{ 2 comments… read them below or add one }
For what it’s worth I still think the long view here ends with significantly higher prices than we would have seen in the absence of QE and low rates. I agree it’s not reflected in the money supply so far, however.
I know I’ve been on and off wrong about Gilts for most of the past few years, but they really do seem to me a textbook example of an ogre’s dinner party!
You’ve got the Gilt prices being driven down by a Bank trying to prop up growth and to a lesser extent inflation (assuming it believes its trending down to 2% forecast, and presumably downside risk beyond that) by buying gilts — gilts that we must still presume it intends to sell / sterilize at some point. I’m not clever enough to work out what this means (bonds / interest rates are even harder than shares!) but I can’t believe it’s wholly benign.
But then I’m Panglossian on shares… I think we’re nearing the end of this dodgy phase, or at least closer to the end then the beginning…
This piece in the Economist says it better than my feeble attempt:
http://www.economist.com/blogs/freeexchange/2011/10/economic-crisis
Most of what is said there about the Federal Reserve applies to the Bank of England, though the latter is more constrained by a specific 2% inflation target, which they are thankfully not paying too much attention too. And arguably the BOE have done more to lose their credibility as an inflation-fighter.
This is right on the ball.