Mixed signals from Fed's QE2 programme

On Wednesday, the US Federal Reserve the Fed launched a second round of quantitative easing QE2 in a further attempt to stimulate the US economy. It is a drastic use of monetary policy that, by priming the banking and money market systems with liquidity, is intended to reduce interest rates, raise inflation expectations, and encourage credit creation. The aim is that this should lead to greater investment and spending.

Market participants and analysts were pleased by some of the features, but disappointed by others.

According to Jim Caron, head of global interest rate strategy at Morgan Stanley, the Fed has tried to balance “shock and awe” with a measured response. Total purchases...