Look out for a parliamentary sketch by yours truly in tomorrow's City AM (page 19), but in the mean time, today's piece on how US quantitative easing expectations have spun out of Bernanke's control might be of interest:

EXPECTATIONS about quantitative easing (QE) have now been driven so high – with the market anticipating between $500bn and $1 trillion of extra liquidity – that someone was soon bound to call a halt to the party. That killjoy has arrived, in the form of US broker BTIG’s Mike O’Rourke.

“There are many who have QE trades on and we believe there is high risk that they will be disappointed if the Federal Open Markets Committee (FOMC) walks the way it has been talking the talk,” he wrote in a note to investors last week.

O’Rourke suggests that Ben Bernanke has completely lost control of the QE narrative, leading to expectations massively out of line with his original intentions. The Fed is therefore in a bind: disappoint and cause a correction or pander to the markets. Either way, O’Rourke points to the influence of St Louis Fed chairman Jim Bullard as evidence that Bernanke will let the extra cash dribble out of the Fed only gradually and in response to economic data. If he is correct, the FOMC’s next meeting on 2-3 November will be a nasty shock for markets that have grown increasingly reliant on a tidal wave of QE.

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