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Ken Fisher Discusses Why Most Investors Misunderstand Quantitative Easing

Ken Fisher
Fisher Investments, 17 September 2021


Many investors fear that when the Federal Reserve begins tapering bond purchases—aka quantitative easing or QE—the stock market could be headed for trouble. However, Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher says these fears assume QE is a form of economic stimulus, which he says is exactly wrong.

Ken Fisher explains banks are in the business of taking in short-term deposits to finance long-term loans. The spread between those interest rates represents a rough estimate of banks’ profitability on new loans. The bigger that spread, the more incentive banks have to lend. Central bankers have long believed that buying long-term bonds to help lower long-term interest rates (often how QE works) incentivizes people to borrow more. While true, Ken says lowering long-term interest rates also reduces banks’ incentive to lend. When banks don’t lend as much, the effects are a disinflationary environment and muted money supply growth—not exactly economic stimulus.

Ken Fisher explains how the Fed’s plan to taper bond purchases allows long-term interest rates to rise naturally, increasing banks’ incentive to lend and reversing QE’s unintended consequences. That’s why Ken says tapering is actually bullish for investors and the stock market.

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