Some Economic Thoughts on Quantitative Easing III

June 27, 2013
The leading indicators aren’t forecasting the bright economy that the Fed is expecting.

Recently Fed Chairman Ben Bernanke announced that the country’s central bank might start slowing down the amount of bond purchases later this year and end it entirely by mid-2014.  There was a qualifying statement about IF the economy achieves the sustainable growth that they believe quantitative easing will produce. 

That last sentence is important.  The reduction of quantitative easing is dependent on a strengthening US economy.  They believe in a brighter 2014, and you and I know that the leading indicators are signaling a slower economy with a sluggish consumer environment next year.  That means they may not dial back on the massive bond-buying program. 

The second part of the statement pertains to the belief quantitative easing is helping and their actions are creating a stronger economy.  A slowdown in 2014 is already being signaled, thus suggesting that massive spending is not producing the future they envision. 

QE3 has not produced a brighter economic future for you or me.  It has created the potential for an asset bubble or general inflationary pressures.  St. Louis Fed President James Bullard and Kansas City Fed President Esther George are both expressing concern about future imbalances (read that as asset bubble or inflation) sometime in the future. 

Time will tell which is the case and how effectively the Federal Reserve Board can deal with the problem that they are creating.  

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