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More Stimulus: The Case for Continued QE

NEW YORK ( The Street) -- How effective has QE really been? 


True, it has underpinned the U.S. market rally and helped investor confidence. But unemployment remains stubbornly above the Fed's 6.5% target while gains in inflation have progressively lost steam since 2012, as evidenced by this chart.

Core personal consumption expenditure inflation inched up 1.1% in October, well below the central bank's 2% target. Doves may well argue that a lack of price pressure and still-lackluster jobs market mean QE should stay in place. On the flipside, the raft of strong economic data over the past few weeks paints a convincing case for scaling back stimulus. As Charles Plosser, president of the Philadelphia Federal Reserve Bank told CNBC on Friday: "It would be wise if we began to get rid of this program - I don't think it is doing very much good." He expects the economy will grow 3% next year.

Separately, check out this strong correlation between GDP and consumer spending.




In the U.S. the consumer really is king. While over time, people are spending a higher proportion of their incomes, this year they spent slightly less of their pay-packets as cautious sentiment prevailed despite the market rally. Let's hope the consumer digs deep in 2014.

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