Confronted by weakening PMI data and tightening liquidity in the financial markets, the Fed has
reverted to another QE effort. It will buy substantial amounts of 3 month T-bills at least for the
intermediate term. As the Fed again expands its balance sheet, some funds will invariably leak
into the money supply, likely further adding the growth of the real money supply. This is a plus for
the stock market as is the Trump team's effort not to intensify the trade war with China. These
developments will help the economy although the timing in the shorter run is necessarily
imprecise give the continued deterioration in the US economy, especially in the industrial sector.
The return of QE adds significantly to inflation potential if the economy re-accelerates in growth
in the months ahead.
The 2020 national election is still more than a year away. The House seems ever more likely to
impeach Trump as soon as it can plausibly do so, but the Democrats still must settle on a
candidate and a platform to put in opposition. As of now, investors appear to favor a moderate.
Trump is presently expected to survive an impeachment trial in the Senate but could still crash
and burn by election day anyway. So, even if the economy revives somewhat, there still may
be some heavy clouds for pundits to grapple with even so.
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