Pressure mounts on US Fed’s QE2 Lifeboat

LeadIndic Nov10.pngThe US Fed’s new QE2 Lifeboat programme designed to raise asset prices got off to a bad start last week, with most stock markets falling, rather than rising. It has also begun to run into major opposition from advisors to the new Republican-dominated Congress, with an open letter published Monday in the Wall Street Journal and New York Times that suggests:

“We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.”

Equally, the above chart from the American Chemistry Council (ACC) weekly report shows diverging patterns of economic growth across the major economies. It notes that the OECD’s main Leading Indicator for the world economy (blue line) is now slowing quite fast. And the ACC add that the leading indicators for

Brazil and China continue to point strongly downwards, edging below the long‐term trend and implying that the level of industrial production will fall below its longer‐term trend in these two economies.”

Creating more liquidity, as the Fed plans, does not do anything to tackle these key issues. In the meantime, by having caused oil and other commodity prices to soar, it has created added uncertainty as regards chemical industry prospects for 2011.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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