In a week when Ireland announced that its economy contracted in the second quarter and the price of gold hit a record high, it is perhaps not surprising that markets have taken a skittish turn. News that both the US Federal Reserve and the Bank of England have become more open to the possibility of taking further action to sustain the recovery – most likely in the form of fresh quantitative easing (QE) – has not lightened the mood.
Neither central bank has indicated when a second round of QE should start. The Federal Reserve’s open market committee, in a change to the statement issued after its September meeting, indicated that it was prepared to provide “additional accommodation if needed to support the economic recovery”. Minutes from the last meeting of the Bank of England’s monetary policy committee revealed that some members believed that the probability that “further action would become necessary to stimulate the economy” had increased.
They are right to hold back for now. The British and US economies have not significantly deteriorated. Growth is slow and unemployment high in the US, but exports, manufacturing and private sector jobs are all expanding. Similarly, falling consumer confidence and a widening trade deficit in Britain have been matched by increases in manufacturing output and business services spending. With the short-term picture so mixed, there is insufficient evidence that an ultra-loose stance needs to be made even looser.