“Federal Reserve Chairman Ben Bernanke has acknowledged the importance of stock prices to the efficacy of quantitative easing.
In a speech given last month in Indianapolis, Bernanke said, “Lower interest rates also put upward pressure on the prices of assets, such as stocks and homes, providing further impetus to household and business spending.”
Deutsche Bank macro strategist Alan Ruskin thinks that may be understating the case. In a note to clients, he writes, “In the end, there is little doubt that as bond yields have approached a lower bound, the Fed is heavily dependent on other channels to ease financial conditions, from credit spreads, to equities and a weak USD.”
Ruskin calls the “equity channel” of “particular importance” to the Fed.
And with a lot of uncertainty weighing on markets due to the potential for a “fiscal hurricane” to materialize, Ruskin says the Fed’s QE3 program could be “very exposed.”
Ruskin writes:”
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