Ben Bernanke announced today that QE3 (Quantitative Easing 3) would be an open-ended round of buying mortgage securities and keeping rates between 0% and 0.25% through mid-2015. This move is the biggest and boldest of all the easing the committee has done yet. Unlike QE1 and QE2 where there were limits set to how much they would spend, and how long it would last, this time they’re just saying that they’re going to buy $40 BILLION of mortgage backed securities PER MONTH until things get better. The paragraph from the FOMC statement that sums it up best reads:
“….The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions…should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
While this sounds very promising for stock prices, gold prices, oil prices (virtually everything BUT the dollar), the next paragraph is scary:
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
So what they’re really saying is, things don’t look great out there, and we’re going to keep spending until we fix it. This truely is unprecedented. Employment is still very weak across the country, and that’s our biggest problem. Rates have gotten low and stayed low for a while now, and it’s still not working. They’ve basically made up new rules with this move, and hopefully it will work.
Will this help Obama get re-elected? It probably won’t hurt him. But is this really what our country needs right now? I would love to hear your comments.