Quantitative Issues Aren’t Easing
With elections for POTUS on the horizon, Trump needs the economy looking its best for his crunch debates on the campaign trail. With the economic machine sputtering and the Fed chill about stock-boosting rate cuts, the Donald just had a brainwave – quantitative easing!
Quantitative easing (QE) is just a fancy way to say “printing money,” although that wouldn’t sound nearly as good at cocktail parties. Printing money makes the stock market go up. Why? Because new money, created out of thin air, gets thrown at bonds by Fed Chair Jerome Powell. As he bids up bonds, their value for money slumps, incentivizing investors to buy stocks instead. Just like that, the market gets an facelift.
The underlying economy doesn’t improve by having money thrown at it, however. QE delivers a short-term kick to the stock market, which is only a loose lamination over the top of the economy. Investors drive it with their expectations and predictions about, you guessed it, the economy. That’s why some claim that quantitative easing is like putting lipstick on a pig!
Still, Trump has tweeted for it. The US economy is still alive and kicking despite a vicious trade war, and he wants this Central Bank party trick to keep it that way. We’ll find out if Jerome Powell is feeling generous in his Friday speech!