Throughout the last six years, whenever stocks began to collapse, some Fed official emerged to dangle some new monetary policy (usually more ZIRP or QE) as an incentive to get investors back into the market.
If these verbal interventions didn’t work and the markets cratered, breaking through key support, the Fed implement a new monetary policy.
The most obvious examples of this occurred with QE 2 in 2010 and Operation Twist in 2011: both policies were unveiled when stocks took out the critical 12-month moving average and we at risk of re-entering a bear market.
The August 2015 sell-off has once again brought stocks below this critical line. Right now the markets are rallying to retest this line, but the question remains… what can the Fed do to ignite another major rally in stocks as opposed to a dead cat bounce?
With interest rates already at zero, and negative rates politically unsavory, the Fed cannot cut rates today. So this leaves another QE program or Operation Twist as options.
Or does it?
Unfortunately for the Fed, more and more research has gone public revealing that QE didn’t actually boost the economy in any meaningful way. On top of this, more and more media outlets have picked up the message that the Fed’s policies, specifically QE, have increased wealth inequality.
How Federal Reserve Quantitative Easing Expanded Wealth Inequality (Forbes May 2015).
Fed Policy May Have Widened America’s Wealth Inequality, Philadelphia Fed Paper Says (Wall Street Journal June 2015)
The Federal Reserve and inequality (Washington Post June 2015).
The US within 13 months of a Presidential election. And wealth inequality has become one of the big topics for the 2016 race. With the Fed’s policies now openly being associated with wealth inequality, the bar for another QE program has been set unbelievably high.
The next round of the Crisis beckons. And this time around, the Fed’s hands are tied.
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