The financial markets have reacted to the Fed’s recent announcement of an additional round of quantitative easing with mixed reactions. On one hand, investors are relieved with a potentially new influx of cheap money into the system, but on the other, they are also worried about the potential for inflation and associated economic risks. The market’s reaction is neither extraordinarily bullish nor bearish, but rather, one of a great deal of caution.
Since the announcement, the fear of inflation has been pushed to the background and instead optimism appears to be increasing on the outlook for the US economy. This new outlook has pushed US bond yields higher, further helping to process the further economic recovery. It also appears that investors are feeling more optimistic about the future of the US equity market, with the S&P 500 trading near an all-time high.
However, with concerns of rising inflation and the risks of further printing of money to increase liquidity still rising, investors remain cautious when it comes to putting new money into the markets. This combined with the prospect of higher taxes being a potential outcome of the upcoming Presidential elections of 2021 has kept the market’s rather tame.
The announcement of the Fed’s quantitative easing has boosted the dollar, and strengthened the US economy with a revived manufacturing sector. This bodes well for the prospects of the US economy, but with inflationary concerns still hanging over the markets, the Fed must be cautious of not printing too much money and not to fierce of an economic policy.
In conclusion, the reaction of the market to the Fed’s recent announcement of quantitative easing has been mixed. Investors remain cautiously optimistic on the prospects for the US economy, but are still worried about the potential for inflation and other economic risks. The next few months will be the deciding factor for the future of the US economy. It’s up to the Fed and policymakers to make the right decisions and promote a recovery of economic growth.