Let's say, purely hypothetically, that the Fed provides several hundred billion in temporary account authorizations to the trading desks of a few select institutions, e.g. Goldman Sachs, with instructions to "support the market" in the short term, for whatever political or economic motivations they might have. Now, we all know when the Fed provides "quantitative easing", "monetizes the debt", "prints money", "expands its balance sheet", or whatever other euphemistic term you want to apply to it, they are simply creating the "money" out of thin air, which has the immediate effect of devaluing the dollar. When the dollar is devalued, the cost of things that have a perceived intrinsic value (oil, commodities, stocks, imported goods) goes up. According to Dennniger, approximately $1.5T additional "Fed funny money" found its way into the market in July, hence the otherwise inexplicable 19 - 20 day bull run. Call it the "dollar/inflation trade". According to what the Fed said on Wed, they plan to keep the fiat spigot open until ~ Oct, when hopefully the economy and the markets will be better able to withstand the withdrawal pains of bringing their balance sheet back in line with historical norms. The old saw for the markets is "don't fight the Fed", so we could see another month or so of "propping" until the piper has to be paid. If yesterday's retail figures are any indication, 3Q earnings will be horrible, especially for retail, since all the efficiencies from cost cutting have already been taken in the 2Q. With all the uncertainty surrounding the Orwellian HC bill, small businesses in particular are simply not hiring. However, prices that consumers pay are also governed by demand, and so due to the weak demand, the retailers have no pricing power. So, even though the CPI may show as flat, the inflationary pressures are certainly building. The last time I bought gas, it was ~ 20 cents higher per gallon that the previous time.
