While the mere hope of a rate cut is giving some traders courage, and an announcement would likely give stocks a bounce, not all analysts agree it will be good for a stock market. They see more liquidity as merely forestalling the inevitable pain.
In December economist and global financial strategist David Rosenberg warned the Federal Reserve’s “liquidity injection that’s ongoing” has fueled a dangerous bubble in risk assets like consumer credit and the stock market.
It’s no coincidence that the market overheated and went bust during the Federal Reserve’s “QE Lite” starting in September. That’s when the Fed started pumping $77 billion a month into overnight lending markets.
Big banks lend money to each other for 24 hours in these markets so they have enough cash on hand for withdrawals. Fed Chair Jerome Powell said the massive money injections were “not QE.” But the last round of Quantitative Easing, QE3 only pumped $40 billion a month into markets.
- Source, CCN
