Syndicate content

Add new comment

The idea behind QE2 is that it will keep down long term interest rates as the short term rates are up against the zero lower bound. The Fed is unable to reduce short term interest rates any lower than they are at present so it has had to resort to this unprecedented response in an effort to ease monetary policy. The likely extension of the Bush tax cuts and everything else that is being bundled in with that will act as a significant second large stimulus in the US, and ease concerns about the US economy experiencing a double dip recession. It is likely that the uncertainty generated by the fiscal crisis in the Eurozone will actually have bigger currency implications than QE2, and I believe that the Euro will therefore perform weaker than the US dollar over the next year as a result. CFA franc countries, pegged to the Euro, will benefit from weaker currencies which will increase the competitiveness of their exports. However, it will also make oil imports, which are quoted in dollars, more expensive and push up import and transport costs as a result.