FT Alphaville has an interesting story about a speech from Charlie Bean, the BOE deputy governor for monetary policy on QE. Bean focuses on the impact of asset purchases for QE in the private sector to boost asset prices. This is different then the traditional view of QE which is supposed to be through the banking channel.
Bean argues, contrary to earlier views, that by purchasing assets from non-banks, there will be a increase in asset prices which will be good for the overall allocation of capital. If financial assets, bonds increase, rates will decline and the cost of borrowing will also decrease. (Sounds like the Fed would like to do in the MBS market.) This is different than the conventional wisdom.
This will also be a key sticking point on what may happen with QE easing in the future. If the purchases are successful at raising prices what will happen when the policy changes. there should be a price drop which will have the effect of trashing the bond market. What will the Treasury think of their fiends at the central bank when that happens?
Bean argues, contrary to earlier views, that by purchasing assets from non-banks, there will be a increase in asset prices which will be good for the overall allocation of capital. If financial assets, bonds increase, rates will decline and the cost of borrowing will also decrease. (Sounds like the Fed would like to do in the MBS market.) This is different than the conventional wisdom.
This will also be a key sticking point on what may happen with QE easing in the future. If the purchases are successful at raising prices what will happen when the policy changes. there should be a price drop which will have the effect of trashing the bond market. What will the Treasury think of their fiends at the central bank when that happens?
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