Saw this on a paper from SocGen. Global markets have been on a roll since 2009 with essentially unlimited liquidity from the central banks around the world and for the first time last week, Bernanke hinted towards an end of QE3. I believe the below quote summarises the key outcomes best.

” WHEN WILL THE FED END QE? The FOMC has kept guidance on asset purchases deliberately vague but termination is tied to a significant improvement on the employment outlook. FOMC minutes last week showed a wide range of views on when conditions for ending asset purchases might be met; (1) “a few” viewed end 2013, (2) “a few” gave no timeframe but noted the need for ‚considerable‛ accommodation, (3) “several” said well before end 2013 and (4) one (Lacker) was against any additional purchases. With the Fed quite evenly split on the asset purchase timeframe, the final agreement on the automatic spending cuts (due to be decided by end-February) will be an important determinant. Our new growth forecast for 2013 of 2.4% assumes that half the spending cuts ($55bn) will be implemented. This, in turn, should allow the Fed to bring about an additional $1.1tn of additional QE over the coming year. Risks that QE could end earlier, however, have increased. The end of this week will see the Fed’s Bullard, George, Kocherlakota and Plosser speak on the US economy. MARKET ISSUES: QE demand, stall-speed growth and low inflation acted as a triple-anchor on Treasury yields in 2012. Our expectation is for yields to now track gradually higher as sustainable recovery takes root in the US, but with still low inflation and high unemployment promising additional QE. The balance of risk, however, is clearly shifting to the upside for Treasury yields and the US dollar.”

Source: SocGen’s Michala Marcusen

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