ML-Implode News - Ray Dalio's Bridgewater On The Fed's Dilemma: "We're Worried That There's No Gas Left In The QE Tank"

The dilemma the Fed faces now is that the tools currently at its disposal are pretty much used up, in that interest rates are at zero and US asset prices have been driven up to levels that imply very low levels of returns relative to the risk, so there is very little ability to stimulate from here if needed.Â So the Fed will either need to accept that outcome, or come up with new ideas to stimulate conditions.
We think the question around the effectiveness of continued QE (and not the tapering, which gets all the headlines) is the big deal.Â Given the way the Fed has said it will act, any tapering will be in response to changes in US conditions, and any deterioration that occurs because of the Fed pulling back would just be met by a reacceleration of that stimulation.Â So the degree and pace of tapering will for the most part be a reflection and not a driver of conditions, and won't matter that much.Â What will matter much more is the efficacy of Fed stimulation going forward.

Relevant:

Ray Dalio's Bridgewater On The Fed's Dilemma: "We're Worried That There's No Gas Left In The QE Tank"