Fed may hint at QE but won't inject dollars yet: IG Markets

In an interview to CNBC-TV18, Justin Harper of IG Markets says talks on quantitative easing (QE) have become louder with global markets banking on a flood of liquidity hitting the system soon.

But Harper wonders how far central banks like the European Central Bank and the US Federal Reserve will let things go before they get involved. The ECB stayed put yesterday without offering a whiff of QE. Will the Fed’s chairman Ben Bernanke take a page out of the ECB’s book today and remain silent on any further round of easing? Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Are you at all surprised that once again the hopes of QE3 are being talked about and is that something that you see as being very realistic? What are you making of the ECBs decision? We were expecting rates to be on hold but the last time we had spoken to you, you had indicated that they’d be waiting in the wings.
A: The ECB are still very cautious about another round of QE but you wonder just how far they will let things go in Europe because things took a much negative turn for the worst with the Greek elections that failed and we now have got the second round next week but we also have Spanish banks and worries about the banking sector pulling down the rest of the euro zone. So you do just wonder how late the ECB will lever and how bad things have to get before they will get involved.
There was talk of them cutting interest rates yesterday which never happened. There was no talk at all of monetary easing at this stage. With the Fed, it looks like they might push the button sooner. You have got different views from both those central banks. I think the euphoria we are seeing in the markets at the moment is over cooked. There is no real material change in stance, there are just rumors of both central banks making some sort of announcement but nothing has happened yet. It’s just speculation at this stage. Q: Are we likely to hear any hint of a QE3 or monetary policy from Ben Bernanke today?
A: It might be mentioned but I don’t think it will be. The time frame will be such that are we going to launch it now or we are going to launch it next month. I think it’s very much a wait and see. Yesterday we had some comments that were quite bullish on QE3 however growth is actually moderate. So I think it’s too early for a knee jerk reaction to say – quick, we better suddenly flood the economy with cheap dollars. So hopes are stronger but it doesn’t mean to say it is going to happen this week or this month even.