Stock Markets around the world saw a major sell-off after S&P downgraded U.S.’s credit rating on Friday. The ECB’s announcement that it would intervene in sovereign debt markets to under its Securities Markets Programme (SMP), did little to allay investor concerns.
But markets moved higher ahead of the Federal Open Market Committee meeting today.
While chatter about a third round of liquidity continues, Jim O’Neill, chairman of Goldman Sachs Asset Management in an interview with Bloomberg Television said, that despite a scary day on wall street yesterday, he believes it is a little hasty for a third round of quantitative easing (QE3):
“I’m not sure the Fed is going to be rushing to QE3 at this meeting but what i do think is that the statement will acknowledge the recent issues and they will make it clear that they intend to keep financial conditions as accommodative as possible. What i suspect they are probably doing, is exploring ways to have more specific measures to support areas of real bottlenecks of the markets and the economy, rather than quickly embark on QE3.
Its not without its own controversies of course, and i find myself increasingly thinking in the context of a global sense. The biggest positive thing that is really necessary, is for inflation to start easing in the growth market world, in China, the other BRICS and beyond, and of course with what happened in commodity prices, that should be the case. And given that these places are the export markets of the future, for Europe and the U.S. to get out of their challenges, that’s a big bonus.
The Fed doesn’t want to go rushing to QE3, and do things that could lead to a big drop in the dollar and a further big recovery in commodity prices because that wouldn’t really help them in my opinion.”
He did however acknowledge that the S&P downgrade became a prestige issue and brought U.S. financials under the scanner again and that the Fed needed to address the issue.
Watch the entire interview at Bloomberg TV: