Why qe3 wont work

More from Quartz About Quartz. Follow Quartz. These are some of our most ambitious editorial projects. By Matt Phillips. Published October 17, This article is more than 2 years old. Sign me up. Our survey evidence suggests that some small tweak of the interest rate is not the answer. It would be far more effective for our policy makers to pursue an agenda with the goal of reducing policy uncertainty.

The patient will best return to health in a stable environment. Footnote is an online media company that increases the impact of academic knowledge by making it accessible and engaging for new audiences. Learn more about Footnote and our contributors. Follow us on Facebook and Twitter. Partner with us to increase the impact of your research. The survey referenced in this article was completed May 30, and involved over CFOs from across the globe, including from the U.

Sidenotes a While the Fed essentially controls short-term interest rates, it only influences long-term rates, and QE is designed to give it more sway over long-term rates.

Quantitative easing involves the Fed buying up assets, typically Treasury bonds, thereby raising their price and reducing their long-term yield. This leads to lower long-term interest rates, which encourages banks to lend instead of keeping their money locked up in bonds. Consumer expenditures are smooth, while investment can vary significantly.

For example, in the horrible first quarter of , real consumer expenditures dropped by 1. The Fed's accommodative policies have been contentious from the start. Republicans often warn that as the Federal Reserve has expanded the money supply, it has set the economy up for rapid inflation in the future. Meanwhile, economists expect the benefits to be minor , and the risks are uncertain. The first two rounds of quantitative easing lowered interest rates and fueled stock market gains , but banks haven't been eager to lend out money readily.

Martin Feldstein: What worries me about QE. Households continue to pay down debt, and are in no hurry to ramp up their spending. That said, it's possible the Fed's move could help the housing market slightly. New construction and home prices have already started picking up recently, and should mortgage rates fall further , that could fuel a quicker housing recovery.

The QE3 move comes after Bernanke has repeatedly urged Congress to do more to support the recovery in the short term, while still addressing the country's debt problem over the long term. But Congress has done little to heed his advice, and given it's an election year, they're not expected to act anytime soon. The result was an anemic economic recovery but a stunning rise in stocks — percent in all off the March financial crisis lows.

Since that hallowed date? Pretty much nothing. The market was trading Tuesday within a couple points of where it was the day the Federal Open Market Committee announced it was cutting off the market's lifeline. These levels have been breached before, most notably in August , but the recent trend of lower highs is saying something about risk appetite," Citigroup analysts said in a note Tuesday.

Sure, there have been peaks and valleys since the Fed took away the QE portion of the punch bowl. But stocks have been trapped in a pretty vicious range post-QE3, plunging amid geopolitical turmoil, fears of a hard landing in China and tumbling energy prices, then turning higher again after the storms temporarily passed.