Much of the sell-side research we get is hinting that more quantitative easing in on the way. Here is a Bloomberg article that highlights this. This would be QE3.
In the past I have highlighted that QE didn’t appear to accomplish much in the real economy (as opposed to the financial markets). Further, the Pragmatic Capitalist has an extensive list with graphs on how QE2 turned out. Here are the highlights:
- Private sector lending did not increase
- Unemployment was not reduced
- Consumption didn’t increase
- GDP didn’t pickup
- The dollar moved down and exports moved up.
- In the meantime, it appears the initial positive effect on equity markets has evaporated as the S&P 500 is close to the value it was when QE2 was announced.
- Many commodity prices have also pulled back, although are still higher than they were last August.
- Interestingly, Treasury yields rose as the Fed purchased longer-dated Treasuries and fell when the purchases stopped.
Thus, I still don’t think more QE is the answer and my points are the same as they have been all along:
- QE2 doesn’t appear to have a substantial impact on the real economy with the exception of commodity prices and exports.
- The resulting increase in commodity prices actually hurts the consumer.
- There was an increase in exports, which helps growth; however, given the lack of pickup in GDP this was negated by other factors.
- It does seem to impact equity and commodity markets; however, that appears to be temporary.
- The Treasury market didn't seem to move at all.
