Europe catches a cold, US gets the antivirals

This is how Trevor Greetham, Director of Asset Allocation at Fidelity Worldwide Investment, has described the US Federal Reserve to pump even more money into the US economy.

The Fed decided on Thursday to inject a further $40bn a month into the US economy, in a move described as QE3.

They will do this by buying up mortgage debt and it will continue until further notice.

At the same time, they will also keep long-term interest rates at a level below 0.25%.

Here is what Greetham had to say on the move:

“Once again the Fed has upstaged the ECB with powerful and open ended easing program aimed right at the core of the problem – housing finance.

“Ben Bernanke is the world expert on what the Fed should have done to get out of the Great Depression and he is following the playbook to the line. Ease aggressively, don’t reverse course and keep the easing going well into the recovery.”

This is the sort of decisive action we need to see taken in Europe if a sustainable global economic recovery is to be triggered.

By acting alone, the US might manage to insulate their economy from the worst of the contagion from Europe. Despite their size, it is unlikely that such a move in the US will drive the entire global economy, in the short-term at least.

Where the US leads, others are however likely to follow.

It will be interesting to see how the Bank of England and European Central Bank in particular react to the start of QE3.

Here in the UK, we don’t expect to see much more in the form of quantitative easing, unless the European sovereign debt crisis significantly worsens. We are expecting to see a further interest rate cut by the end of the year.

At least the markets are experiencing a ‘Bernanke Bounce’ this morning as a result of QE3.

As I type this, the FTSE 100 index of leading UK company shares is up 1.41%, at 5,901.91. Stock markets across Europe are up between 1.5% and 2% on the announcement.

Photo credit: Flickr/Talk Radio News Service