Since the Fed has already lowered interest rates and promised to keep them low until the economy starts to improve, they have resorted to more QE. QE3 was announced about three weeks ago but, if you have seen some of today’s headlines you may have been shocked by the term “QE4”.
This was talked about because of the potential of the Fed increasing it’s amount of money for bond purchasing.
I tend to think the Fed really doesn’t know what else to do. “No more interest rate lowering, so, let’s try more QE.”
Since the first round of quantitative easing there has been very little growth in the labor market when contrasted with the billions of dollars that the Fed has invested into their idea.
I suppose QE is what you try when you put common sense aside, and get into trillions of dollars worth of debt.
An interesting fact is: changes could be made soon to increase the amount the Fed puts into QE3. “The bottom line is that the Fed is still in the improvisation phase of its new policy regime,” said Vincent Reinhart, chief economist at Morgan Stanley. Since it is the beginning stages of this program, it wouldn’t be surpising that new developments are released before the end of the year.
In the FOMC statement today the Fed announced that the “Committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs.”.
What does this mean exactly? I think it means the Fed could create more money at will (as much as they want) according to what they perceive concerning the economy.
One critical conclusion given in today’s Fed Minutes was why they did QE3. “The sluggish job market and worries about Europe’s debt crisis, Chinese growth and the so-called fiscal cliff closer to home pressed the Federal Reserve into launching its third round of large-scale bond buys, according to minutes released Thursday.” from Market Watch WSJ. Read their article here.
The below quote is part of the FOMC Statement from today:
“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”
Could “at least through mid-2015” progress into a much later number? If QE3 hasn’t been fruitful by then, will it continue also?
How Long will QE3 last?
“A number of participants questioned the effectiveness of continuing to use a calendar date to provide forward guidance, noting that a change in the calendar date might be interpreted pessimistically as a downgrade of the Committee’s economic outlook rather than as conveying the Committee’s determination to support the economic recovery.” From today’s FOMC Statement.
So, How Long will QE3 last? As long as the Fed wants it to last, that would be the correct answer. There is not a date set in stone to stop creating money but there may be a goal set in place that would function as a finish-line. Let’s hope there is at least a goal. A goal without a timeline is a fantasy.
Other news to note, Mitt Romney was victorious in last night’s Presidential Debate over Barack Obama. He and his VP Paul Ryan are strongly against QE3. According to Market Watch from the Wall Street Journal, “The campaign of Republican presidential nominee Mitt Romney called the Federal Reserve’s third round of quantitative easing another “bailout” for President Barack Obama’s economy”.
It will be interesting to see how Mitt Romney approaches the Fed and QE3 if he is elected.
To read the full Minutes report from today, click here.
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