Here is a good video on further monetary stimulus on courtesy of Bloomberg:
In the video Lena Komileva, global head of G-10 strategy at Brown Brothers Harriman & Co., discusses why QE3 wouldn’t be a prudent move for the Fed.
First, quantitative easing (QE) is when the Fed buys longer dated Treasuries in an attempt to drive interest rates lower and inject cash onto bank balance sheets. Both should encourage lending. QE3 would be the third time the Fed has done this.
The problem is QE2 didn’t accomplish its stated goals: banks actually lent less to consumers and Treasury yields even rose after the November 2010 announcement (Note: the idea was floated in August 2010).
That isn’t to say QE2 had no impact. In fact, I believe QE2 helped raise equity prices, and despite recent volatility, the equity markets are up since the Fed began QE. That said commodity prices are also up. With high unemployment and a consumer, who is still deleveraging, rising commodity prices help hold back the recovery.
In a later post I will cover why QE as a policy that struggles to gain positive traction, at least in its stated objectives, but for now I just wanted to relay point out why further QE is probably not what the economy needs.
