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QE2 to be rolled out as GOP wins control

Wednesday 3 November 2010 - by Nicola York

US Federal Reserve in Washington DC

The US Federal Reserve is expected to announce a second round of quantitative easing later today against the backdrop of a record-breaking win by the Republicans in the US mid-term elections last night.

The Federal Open Market Committee will be meeting today to determine whether $500bn to $1tn of asset purchases over the next six months will go ahead.

This has prompted concerns that it will spark another asset price bubble and potentially cause inflation. Meanwhile, US bond yields are at their lowest levels for nearly two years as a result of expectations of the Fed's move.

US Republicans won control of the House of Representatives last night largely as a result of economic unease. But the Democrats narrowly kept control of the Senate, though President Obama's old Senate seat in Illinois went to a Republican.

BNP Paribas says it expects little short-term impact on the equity markets from the mid-terms as the outcome was very much anticipated.


The bank also predicts that QE2, as it is referred to, will have little impact on the foreign exchange market.

It says: "This is a far more moderate policy easing compared to the market expectations of a month ago, which helped push many currencies to valuation extremes against the USD. This suggests that any market reaction to the Fed announcement (assuming it meets market expectations) is likely to be short lived."


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