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A: Thank you for your feedback and for sharing your thoughts. I think what we are seeing is following form with the argument I made in the February piece about the Fed's asymmetric outcome. QE seemed destined to be ineffective because it is only beneficial for people who own stocks and/or a home. Not everyone does, which is why there is such a disconnect between the record highs on Wall Street, the house flipping in certain markets, and the real economy of Main Street.
I think one of the unintended consequences of QE is that it has scared a lot of decision makers. They are scared to make decisions today because the continued expansion of QE sends a message that things are still bad. And they are scared to invest because they don't know what to think of the future when the Fed is not buying as many Treasury securities. That leads to lower levels of aggregate demand that will invite pricing pressure as supplies exceed demand and as consumers become more price-sensitive due to stagnant incomes.
The effects are compounded for some commodities since producers built a lot of new capacity during the commodity boom several years ago and the added supply isn't being absorbed because demand from China has also been tempered.
There are indeed some important answers that await.
Patrick J. O'Hare
Chief Market Analyst