No QE3, No Jobs & No Stimulus?

ForexNewsNow | Published on September 4, 2011 at 5:57 am

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As we forecasted, Friday’s release of the Nonfarm payrolls has underlined how volatile the financial markets currently are since the Jackson Hole Meeting and the Fed’s refusal to inject more liquidity into the flailing US economy with another round of quantitative easing (QE3).

The US Nonfarm Payrolls report release revealed that the US did not create a single job in August even though analysts had forecasted a figure of around 70K new jobs created. This nonfarm reading was, in fact, the worst since September 2010.

To add insult to injury, the Nonfarm Payrolls report figures for July and June were downwardly revised revealing only 85,000 and 20,000 jobs created respectively, which means 58,000 less than had been previously estimated. The US unemployment rate has, however, remained stable at 9.1% of the workforce.

At the close of trading on Friday, the Dow Jones had lost 2.2% to close at 11,241 points and the S&P 500 was down 2.53% to close at 1174 points with the Nasdaq also losing 2.58% to close at 2480 points.

Consequences of volatility
One of the main consequences of both the disappointing employment figures and the negative stock exchange numbers is the additional pressure that will be exerted on US President Barack Obama and Fed Chairman Bernanke to fix the current situation.

On Thursday, Sept. 8th, Barack Obama is to make a speech before Congress in order to unveil his new job creation plan. But will an employment plan be enough to calm the markets?

A new employment plan is necessary, but certainly not enough.

As ForexNewsNow analysts have been saying for a few weeks now, political leaders must at last take the reins and submit a decent proposal to help put an end to the crisis.

As some may recall, Fed Chairman Ben Bernanke and IMF boss Christine Lagarde had declared at Jackson Hole that political leaders had to take the lead for creating a new stimulus plan in order to avoid an economic catastrophe.

Nevertheless, the Fed’s responsibility should not be completely overlooked. By refusing to launch a new round of quantitative easing, Bernanke gave the markets the power to decide the future of the crisis. When it comes to the events that directly impact markets, economic data releases seem to have replaced political decisions. And this does not bode well.

Investors around the world will continue to look to the Fed meeting on September 20th and 21th in hopes of some sort of monetary stimulus to jumpstart the US economy.


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