Tag Archives: Input Prices

Is the Recovery in Corporate Profit Margins Over?

QE2 has yet to begin in earnest and yet its effects are already being felt. In the words of the New York Fed’s Brian Sack, it is hoping via QE2 to (emphasis mine):

keep longer-term interest rates lower than otherwise by reducing the aggregate amount of risk that the private markets have to bear. In particular, by purchasing longer-term securities, the Federal Reserve removes duration risk from the market, which should help to reduce the term premium that investors demand for holding longer-term securities. That effect should in turn boost other asset prices, as those investors displaced by the Fed’s purchases would likely seek to hold alternative types of securities.

In their own words the Federal Reserve is hoping that lowering interest rates and inflating asset prices will encourage business to expand and stimulate consumers due to a wealth effect. But there is a downside; in fact QE2 may already be doing more harm to the economy than good. Read more of this post