Is the Fed's latest gamble working?
The stock market's 17% rise since Federal Reserve chairman Ben Bernanke announced his plans for a second round of quantitative easing in late August has sparked further speculation that the economy may be on its way to recovery.
Bernanke's push to reinvigorate the economy through a massive, $600 billion series of government debt purchases has been met with mixed responses. Though the move (dubbed QE2, for quantitative easing) is meant to boost employment and lower interest rates, others fear the possibility that it will instead fuel inflation.
As its doubled its pre-crisis balance sheet to more than $2.3 trillion, the Fed's low interest rates and debt-buying programs have done much to enrich corporate coffers. But the program's effect on the larger economy is less clear.
Still, the stock market has surged. This week, the S&P rose to its highest level since September 2008, hitting 1,242.87, which has prompted optimism in some analysts.
"The market has positive momentum and it really has been a momentum story since late August," said Katie Stockton, the chief market technician at MKM Partners, an institutional equity research, sales and trading firm. Stockton noted that her estimate for the S&P's next high was 1315, if momentum continued.
However, the rise in interest rates since QE2 was unveiled has others less convinced. It's not clear, for one, whether or not the stock market's rise is due to merely to sentiment -- or an economy that's actually on the mend.
"It provides some support to growth," said Dean Baker, the co-director of the Center for Economic and Policy Research, of quantitative easing. "The recent runup has been slightly more positive news."
But Baker did not take the recent stock market climb to be a major positive indicator for the economy. "There's always a fair degree of indeterminacy of where the market should be," he said. "The market is relatively low level in the scheme of things."
Holiday spending, however, is up, a sign that consumers may be ready to spend again. A spokesperson for the National Retail Federation predicted that there will be a 3.3% growth in retail sector this November and December.
Further, a survey of leading economic indicators by the Conference Board, a private industry group, rose by 1.1 percent, its highest rate in eight months.
"The U.S. economy is showing some sparks of life in late 2010," said Ken Goldstein, an economist at The Conference Board.
Yet despite positive trends in the stock market and spending, unemployment numbers remain high. The nationwide unemployment rate rose to 9.8 percent from 9.6 percent in November, according to the Department of Labor.