| | | If I may, I’ll like to offer my perspective.
When the Fed buys bonds, they are printing brand new money which they send to the bond sellers. That is their role in the US banking system. Absent QE, the Fed buys and sells bonds with a goal to maintain the money supply within the range that is consistent with their inflation target. Their normal key function is to by Treasury bonds on the open market to offset the cash drain that occurs when the Treasury sells bonds in the open market.
QE is a whole nother kettle of fish. In essence, the Fed is buying Treasury as well as mortgage bonds with more printed money in order to provide sufficient liquidity to goose the economy. When they buy a security, the money they send to the seller can be loaned out immediately in full. So the money the Fed printed can find its way into the pockets of business owners, home sellers or any other sort of borrower. Many believe that the original QE money is what has fueled a significant portion of the stock and bond market over the last decade.
So if the Fed is embarking on a new round of QE, past history would suggest another significant stock ramp up will follow. At some point, it would seem likely that owners of stock, maybe the next generation heirs, will start to sell stock in sufficient amounts to fuel real consumer inflation. Or maybe not, I just don’t know. My view is to stay invested in companies that will be able to keep up with inflation so that my principle is inflation protected is I have chosen wisely. |
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