With both the United States and the Euro Zone producing bad economic data, talk of central bank intervention has proliferated amongst analysts and investors. The bad data from the U.S surprised most people who expected better reports and shattered hopes that a U.S recovery would help rally a global recovery. Although opinions are divided, an overwhelming number of analysts and major banking personalities suggest that the Federal Reserve will most likely announce a third round of Quantitative easing to help stimulate the economy further.

Quantitative easing (QE) essentially involves injecting liquidity into the economy. The Federal Reserve achieves this by buying back long term bonds at a higher price than what they are worth. Analysts predict that the coming round of QE might involve a buyback of mortgages as well as bonds. The last meeting of the Federal Reserve Board had indicated that QE was an option but was not looking to explore it anytime soon. This was back when U.S data looked promising. The Federal Reserve vice-chair Janet Yellen and Chairman Ben Bernanke is set to testify before the U.S Economic Committee on Wednesday and Thursday respectively.

While QE is an option for the United States, due to the politically complicated situation of the Euro Zone, European Central Bank (ECB) does not have the independence or the authority to do very much at this juncture. Analysts predict that any move will likely come after the Greek elections on June 17^th or after meeting of major Euro leaders to be held at the end of June. The increasingly complicated Euro crisis has lead analysts to believe that ECB might also be forced to inject liquidity and might have to accept some inflation.

The QE by the Federal Reserve will most likely have serious consequences on the commodities market since most transaction happens in USD. As more dollars are injected into the market, the dollar will depreciate. Historical evidence suggests that prices of commodities such as crude oil and gold will increase. Importers currently being hurt by a strong dollar might find some relief and could encourage spending with lower price which could in-turn boost the demand and price of industrial commodities. As of now, the hype about QE has reached new levels and if the Federal Reserve does not initiate the move, it might lead to further pessimism which might be reflected by a fall in prices across the board.

 Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.