Global markets began to rally today, and the trend may continue as speculation that the Federal Reserve will start QE3 widens. The main cause of the speculation is that US GDP grew only 2.2%, which was less than expected. However, the April jobs report may change the perceived odds of a new Fed bond buying spree.
The Fed may not pay any attention to first quarter expansion numbers. Its official forecast is that GDP will accelerate more than expected in the next two years and that unemployment will improve more quickly that the Fed previously predicted. And, Wall St. continues to send signals that the economy is strong and that slowdowns in EU GDP will not damage US expansion. The DJIA makes a new high most weeks. And, this in turn creates more wealth–some of which will go back into the economy. The rally, for the time being, continues to feed on itself.
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