Following Fed voting member Plosser’s perceived hawkish speech on Friday where he said what to do when the time arrives (whenever that will be) to proceed with an exit strategy, non voting member Bullard on Saturday said “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” as he thinks “the economy is looking pretty good.” It’s highly unlikely the Fed does stop before June 30th but either way, there is only 3 months left in the program. Treasuries are lower and the DXY higher in response but the $ continues lower vs the commodity currencies as the AUD is at a new record high and CAD is near the highest since ’07. We will get a rate hike from the ECB next week, likely 25 bps and one of the few voices in the UK that has voted to raise interest rates, BoE member Sentance, reiterated his desire for rates to go higher “sooner rather than later” as he discussed again the risk of having rates too low for too long. As Portugal’s government continues to twist in the wind, yields are making new highs as an expected bailout is doing nothing to ebb the rise in funding costs.

Category: MacroNotes

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One Response to “Will QE2 face a premature death? Don’t bet on it”

  1. Center right in Germany losing a significant local election to the Greens, no agreement on Ireland at all, indeed no agreement on Portugal and no government in Portugal to deal seriously with anything until June at the earliest….

    It would seem to me that at the moment, the European risk is priced too cheaply…

    AUD may be at records and has had quite a large rebound but the rally there is looking a bit tired and local prices at these fx levels are very, very high…

    The U.S. money supply is moving up at a nice clip, the economy is improving, and higher inflation expectations are beginning to appear – in the face of continued political opposition and public opinion generally against money printing, I would bet against further explicit money printing….and even if the money printing ends in June, the markets will certainly adjust before then…