Markets were flat in the US while awaiting the move by the Bank of England. The central bank cut its interest rate in half to 0.25% Thursday morning and will increase QE.
As the news came out markets were still unsure of how to play the move. After 45 minutes US equities moved higher along with precious metals.
Despite all the talk of England being on the winning side on its decision to exit the EU, BOE President Mark Carney had telegraphed the first move in 7 years to counteract the Brexit vote. Carney is also thought to increase QE to spur economic growth. The BOE cut its 2017 GDP estimate from 2.3% to 0.8%.
The new 0.25% interest rate is the lowest rate in the 322 years of the central bank.
The idea that Carney had to throw the “kitchen sink” at the post-Brexit economy is troubling. To cut 2017 GDP projections by 65% — while Carney says no — suggests a hard-landing recession for the UK beginning now.
History will tell you that QE has little benefit to 95% of the population, since its mainly used to provide liquidity for troubled bank balance sheets.
Market reaction will take some time to play out, but suffice it to say, that equities will rise on this “bad” news.