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Last Friday, the United States released data showing the world’s biggest economy grew at a weaker than forecast 2.5 per cent annualised rate over the first three months of this year.

With US consumer inflation subdued at just 1.5 per cent last month, the soft first-quarter growth number has bolstered expectations that the Federal Reserve will continue its programme of quantitative easing for the time being at least, and keep interest rates ultra-low until the end of next year.

Whether that’s good or bad news for Hong Kong depends on how you see the local property market.

Back in late 2008, when the Fed started its first round of quantitative easing, money began pouring into Hong Kong’s financial system.

To get an idea of how much money, look at the first chart. This shows Hong Kong’s monetary base, together with the net domestic liabilities of local banks, to give the city’s total liquidity stock — a measure borrowed from Morgan Stanley.

As you can see, local liquidity surged during the first round of US quantitative easing, and then surged again last year when the Fed embarked on its third round. As a result, Hong Kong’s liquidity stock now stands at triple its pre-crisis level.

All that money had to go somewhere, and much of it went into the property market. As the second chart shows, the government’s index of home prices has more than doubled since the start of quantitative easing.

It’s not only the residential market that’s seen such enormous liquidity-fuelled inflation. As Freya Beamish at the Hong Kong office of Lombard Street Research pointed out in a note published yesterday, although the city’s white-collar workforce has grown only 10 per cent since the start of the financial crisis, local office prices have shot up by 88 per cent.

As long as the Fed continues its present policies, the super-abundance of liquidity sloshing around Hong Kong’s financial system is likely to support local property prices despite the best efforts of the authorities to cool the market.

But at some point, the Fed is going to wind down the asset purchases that make up its programme of quantitative easing, and sooner or later it will raise interest rates again.

When it does, the excess of liquidity in Hong Kong’s markets will begin to drain away, and the city’s property market will sink like a stone.

That point may come sooner than most people now think.

Although US first-quarter growth was softer than analysts expected, the weakness was the result of a fiscal squeeze which saw payroll tax cuts expire at the same time as Washington slashed government spending, especially on defence.

This fiscal contraction will continue to weigh on headline growth over the next couple of quarters.

But behind the scenes, activity in the US is picking up. Banks have repaired their balance sheets. Consumers have cut their debts and are spending again. The property market is reviving, with prices climbing back to their highest level since the beginning of 2009.

Meanwhile, thanks to lower unit labour costs and cheaper energy, US companies have regained much of their lost competitiveness. Flush with cash, they are ready to invest.

As a result, Lombard Street Research forecasts US growth to accelerate to an above-trend 3 to 4 per cent rate over the next few years, with the Fed starting to raise interest rates by the end of next year.

That, warns Beamish, will catch Hong Kong’s economy in a pincer movement, with higher US interest rates on one side, and decelerating Chinese growth on the other.

With the city unable to react by depreciating its currency, the adjustment will inevitably mean a steep fall in property prices.

How steep is anyone’s guess. But judging from experience, a fall of anywhere between 30 and 50 per cent looks quite possible.