The chances of a double dip recession are getting greater and greater. Last year, Bernanke used the speech at Jackson Hole to hint about the second quantitative easing program (QE2) and the program was officially announced later in November.
After that, the US stock market rallied:
A very similar stock market pattern seems to be emerging. Notice that after the end of QE1, the markets dropped a quick 20% and fears of a double dip recession began to rise.
Fast forward to today, and we see that the markets, once again, quickly declined and fears of another recession are getting greater.
The Fed has hinted in the past that they are trying to inflate the stock market. Their hope is that higher stock prices will create more wealth – wealth that will trickle down into the economy.
Fed chair, Ben Bernanke seems to have his hands tied at this point. Recent data shows the growth in the economy is starting to weaken and having a 24 hour news cycle constantly reporting on the decline in the stock market, declines in the housing market, and talk of a double dip recession are causing scared consumers to lock up their checkbooks.
I have always believed that in a consumer based economy (like the US), perception of the economy plays a big part. If consumers are worried about losing their jobs, they don’t spend. We need to see more cheerleading from the Fed and the White House – especially in today’s 24 hour news-cycle.