Market participants are currently watching the Federal Reserve’s repeated attempts to exit its unconventional monetary policy with eagle eyes. Over the past five years, two such attempts have failed already. At the end of both QE1 and QE2, massive dislocations in financial markets ensued almost immediately. In the current third attempt at an exit, the Federal Reserve is attempting a ‘softer exit’ from its money printing.
The most arguably amusing comparison in this context was provided by FOMC member Richard Fisher in January 2014: he pointed to the fact that under the influence of alcohol, things tend to look more alluring than they really are and offered by way of comparison that QE had a similar effect on investors. Due to artificially low interest rates, they see risk assets through “beer goggles.”
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