The Federal Reserve’s latest easing program has just been implemented, and already talk has emerged about the need for fourth round of quantitative easing (QE) – and soon.
QE3 isn’t strong enough to lift stock prices significantly, says Adam Parker, chief U.S. equity strategist for Morgan Stanley.
So, “we wouldn’t be at all surprised to see the Fed dramatically augment this program (i.e., QE4) before year-end, particularly if economic and corporate news continue to deteriorate as they have over the past few weeks," he writes in a note to clients that was obtained by Business Insider.
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Under QE3, the Fed will buy $40 billion of mortgage-backed securities (MBS) a month. Parker compiled interesting data on how previous Fed MBS buying has affected stocks.
“At this rate of MBS purchases, … we see only a weekly 25 basis points of expected return for the S&P 500,” he writes.
“While such a return can accumulate over months, it is dwarfed by weekly S&P historical volatility (3 percent since November 2008) and can easily be swamped by macro, earnings and geopolitical events.”
That’s why he “suspects” QE4 is coming.
Some experts don’t even see QE as relevant for the economy at this point.
"QE3, QE4 or QE5 may not do much to boost the economy. The bigger issues are concerns about the election, regulation and the fiscal cliff," Wilmer Stith, manager of the Wilmington Broad Market Bond Fund, tells CNNMoney.
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
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