The Federal Reserve building in Washington, D.C. Photo / Thinkstock
When the US Federal Reserve speaks the whole world is compelled to listen, even if it is just a carefully-crafted version of a message already signalled beforehand in market code.
The launch of QE2 this week - the Fed's much-anticipated new round of money-printing (as transmitted by modern technology) -
is one of those moments.
As the Fed prepared to release its money-printing intentions the Wall Street Journal (WSJ) covered the moment like it was a sports event with
this quite amusing live blog.
WSJ blogger Dave Kansas sums up QE2 like this: "Tamp down the long-end yields with purchases while talking about keeping things very easy until the Cubs reach the World Series. Seems the Cubbie strategy is prevailing in the Treasury market."
Sounds good to me.
Meanwhile, what the Fed actually said is here which has been kindly rendered into table form by The Aleph Blog.
I hope that helps.
Whether the US$600 billion money-printing exercise will work - or even what it's supposed to do - has stimulated much debate but the focus in New Zealand has been on the currency implications.
The NZ dollar has been up and down and up again since QE2 came true.
However, most of the money managers and FX experts I spoke to today seemed relatively sanguine about QE2 and its NZ dollar effect.
Anthony Byett of fxMatters said the NZ currency would push higher against the US$ in the wake of QE2 and/or might help sustain it for longer than normal.
John Berry, from Pathfinder Asset Management, agreed QE2 might sustain the $ against the US$ at a higher rate for longer.
"But in our currency modeling the $ [versus] the US$ is way above fair value... but it can stay that way for a long time," Berry said.
Bevan Graham, chief economist for AXA Global Investors, also picked an eventual decline for the $ at some, indeterminate, point, QE2 or not.
Overall, Graham reckons QE2 won't make much difference to New Zealand investors or "from an economic perspective".
As the WSJ QE2 live blog concluded: "Well, a rather momentous Fed statement has come and gone, leaving investors feeling whip-sawed and flustered, but all in all, none the worse for wear."
