Will we be crushed by reverse QE?

SINGAPORE (Aug 11): Forget the US Federal Reserve’s rate hikes. There is far more to be feared from the imminent reversal of quantitative easing (QE) by both the Fed and the European Central Bank (ECB).

In the aftermath of the global financial crisis, the positive correlation between the fed funds rate and the Dow Jones Industrial Average appears to have broken down. Unorthodox central bank actions appear to have affected this relationship.

In efforts to shore up confidence and stimulate flagging growth, central banks in developed markets resorted to bond buying programmes. These QE actions injected massive liquidity, stimulating growth and driving up asset prices.

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