Introduction
Stuart Thomson graduated from Edinburgh University in 1985 with an MA honors degree in economics. He began his career in 1985 as a junior economist with Britannia Asset Management and a year later joined Chase Manhattan Securities. In 1988 he took up the post of chief international economist at Nikko Europe Plc, and in 1997 moved to Credit Agricole Indosuez, where he worked as chief market strategist. In 1999 he joined Sutherlands Limited as a senior economist, and from there went on to be founding director and investor of RIA Limited. Thomson joined Charles Stanley Sutherlands as a senior economist in 2003, remaining there until he joined Ignis Asset Management in August 2006, where he is responsible for international bonds and currencies.
There is a lot of concern that developed economies are finding it extremely difficult to generate any real, sustained growth. Do you see a third round of quantitative easing as a possibility?
We have seen a marked slowdown in the economic data since the middle of 2010, with another distinct slowdown in May 2011. The 2010 slowdown prompted the president of the St Louis Federal Reserve, James Bullard, to warn that there was a very real danger that US consumers, corporates, and investors could all become accustomed to low nominal GDP growth and a quiescent central bank. That kind of attitude is already a few steps along the path to a pernicious deflationary era, and the Federal Reserve will do all it can to avoid the US economy falling into that trap.
As we saw with the second round of quantitative easing, QE2, which ended in June 2011, it is not necessary for the US economy to be seen to be sinking back into a double-dip recession for the Fed to resume quantitative easing. It remains an option if the US economy stalls. The Federal Open Market Committee (FMOC) will keep this under review. (The FMOC consists of 12 members, including the seven members of the board of governors of the Federal Reserve System, the New York Fed president, and a rotating quorum of four of the remaining 11 Fed presidents. At its eight annual meetings the FMOC reviews economic and financial conditions and determines monetary policy, including whether or not to proceed with more quantitative easing.)
Quantitative easing, or QE, is designed to produce effective negative interest rates, which is a disincentive to hold dollars. It has the side effect of exporting deflation to those high-saving economies which do not link their currencies to the dollar. For high-saving, mercantilist economies that do link to the dollar, the inevitable result of the United States rolling the printing presses is inflation.
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