The Federal Reserve's 澳洲幸运5官方开奖结果体彩网:quantitative easing (QE) pr♋ogram inevitably affects the stock market, though it is difficult to know exactly how and to what extent. The evidence suggests that there is a positive correlation between a QE policy and a rising stock market. In fact, some of the largest stock market gains in U.S. history have occurred while a QE policy was underway.

After all, the purpose of a QE policy is to support or even jumpstart a nation's economic activity. In practice, QE policy entails 澳洲幸运5官方开奖结果体彩网:buying massive amounts of gover🔥nment bonds or other investments from banks in order to inj⛎ect more cash into the system. That cash is then loaned by the banks to businesses, which spend it to expand their oper🐲ations and increase their sales. Stock investors anticipate the increased company revenue and buy the stocks.

That's the big picture, but there are other, more subtle, effects of a QE policy on stock prices.

Investor Expectations

The stock market responds to virtually any news of Federal Reserve activity. It tends to rise when the Fed announces an 澳洲幸运5官方开奖结果体彩网:expansionary policy and fall when it announces a 澳洲幸运5官方开奖结果体彩网:contractionary policy.

Perhaps market participants like the prospects of rising asset prices during the early stages of inflation, but it is m🌱ore likely ꩲthat confidence rises on the expectation that the economy will be healthier after expansionary policy.

The QE Effect

Quantitative easing pushes interest rates down. This lowers the returns investors and savers can get on the safest investments such as money market accounts, certificates ✅of deposit (CDs), Treasuries, and corporate bonds.

Investors are forced into relatively riskier investments to find stronger returns. Many of these investors weight their portfolios tow🧔ards stocks, pushing up stock market prices.

Falling i💞nterest rates also influence the decisions made by public companies. Lower rates mean lower borrowing costs. Co🌠mpanies have an incentive to expand their businesses and often borrow money to do so.

澳洲幸运5官方开奖结果体彩网:Fundamental analysis holds that business expansion is a sign of a healthy operation and a positive outlook on future demand. That inspires inves🐎tors to buy stock, which causes stock prices to rise.

How the Fed Influences the Economy

Some economists and market analysts contend that QE artificially inflates asset prices. Under normal conditions, market prices are determined by i꧑nvestor preferences, or demand, and the relative health of the business environment, or supply.

When the Federal Reserve begins entering the market to purchase financial assets, it manipulates price signals in three significant ways: It lowers interest rates, creates a higher demand for assets, and reduces the purchasing power of money units.

Under these conditions, a stock's price may no longer be an accurate reflection of a company's 澳洲幸运5官方开奖结果体彩网:valuation and investor demand. Manipulated prices force market participants to adjust their strategies to chase stocks that will grow whether or not the underlying companies are actually becoming more valuable by any measure of success.

In the U.S., there have been four periods of QE policy since the 2008-2009 financial crisis began. The most recent, QE4, began in September 2019.

When the Flow Stops

At some point, a QE policy ends. It is uncertain what happens to the stock market for good or ill when the flow of 澳洲幸运5官方开奖结果体彩网:easy money from central bank policy stops.

The Federal Reserve added more than $4 trillion to its 澳洲幸运5官方开奖结果体彩网:balance sheet in the half-decade between 2009 and 2014. Those ar🀅e huge liabilities for the Fed, and they represent an important value for debt issuers everywhere.

If the Fed lets the bonds mature and does not replace them, it is equally unclear what impact this could have on the 澳洲幸运5官方开奖结果体彩网:bond market.

Companies that stretch their capital into future operations may discover there is not sufficient demand to buy their goods. Some believe the low-interest rate policy of the Federal Reserve after the 澳洲幸运5官方开奖结果体彩网:dot-com crash in the late 1990s helped to inflate the early 21st-century 澳洲幸运5官方开奖结果体彩网:housing bubble in exactly this manner.

It is theoretically possible sto﷽ck market prices could crash like those housing prices in 2008-09 if the same phenomenon results from QE.