Fed Announces Open Ended QE3

This is a big deal: The Federal Reserve announced this afternoon that it would pursue a third round of quantitative easing, known as QE3. And unlike previous rounds, this one has no predetermined end date.

The central bank said that it will continue adding to its balance sheet by about $40 billion each month — essentially creating additional currency and adding it to the money supply — indefinitely. The Federal Reserve also made clear that it will extend its current "exceptionally low" interest rate on federal funds through at least the middle of 2015. Here's the key portion of the statement:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.  The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.  Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.  The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, 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, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. 

Quantitative easing is frequently described as "unconventional monetary policy," but the open-ended nature of this bond-buying commitment is unique even by the standards of previous actions. It brings the Federal Reserve closer to a policy idea that's become known as NGDP (Nominal Growth Domestic Product) targeting, in which the Fed basically says it will continue buying bonds until the economy reaches a certain target level of inflation and growth. This new round of QE isn't pegged to any sort of economic target, but it does commit the Fed to printing money until, well...whenever it feels like stopping. But taking this idea on its own terms, the Fed's announcement might undermine the way NGDP targeting is supposed to work. The idea is that the Fed provides both confidence and clarity: It will print money until certain well-established targets are met, and boost demand and economic activity as a result. But without a defined target, the uncertainty still exists. 

Did the last round of QE work? Experts weren't so sure when the policy was announced. And they were even less sure after it finished. Here's Steve Chapman with the case against tight money policies. And here's Anthony Randazzo and James Groth on the failures of quantative easing

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  • Reformed Republican||

    Of course. The best response to a failed course of action is to double down.

  • ||

    technically it is triple down....

    but the open-ended nature of this bond-buying commitment is unique

    ...with an option to infinity down.

  • ||

    Hah, I was going to correct your first statement before I finished reading the rest.

  • OO=======D||

    It's easings all the way down

  • Paul.||

    Thank you, JC. I'm slow to the threads but yeah. What you said.

  • ||

    The definition of insanity is doing the same thing over and over and expecting different results.

  • Pro Libertate||

    Four times, sure. But three is grand. Maybe the market will inflate some more before the election!

  • ||

    Five is right out.

  • Pro Libertate||

    Yes, right out, brother.

  • ||

    Our two quantitative easings are QE1, QE2, and QE3...our three quantitative easings are...I'll come in again.

  • Pro Libertate||

    Nobody expects the Quantitative Easing!

  • JW||

    Bring in the inflationary chair!

  • ||

    Put him in...the comfy inflation!

  • Pro Libertate||

    Ooooh! Now, Governor--the rack!

  • ||

    The economies arrive in the entrance hall here, and are carried along the corridor on a conveyor belt in extreme comfort and past murals depicting Mediterranean scenes, towards the rotating knives. The last twenty feet of the corridor are heavily soundproofed.

  • ||

    Are you proposing to slaughter our economy?

  • JW||

    The economy's not dead, it's just resting.

  • BakedPenguin||

    The economy's gonna muscle up to those bars and then BOOM!

  • ||

    It's pinin' for the internet boom!

  • JW||

    Mate, this economy wouldn't "voom" if you put four trillion bucks through it! It's bleedin' demised!

  • Copernicus||

    This economy is no more, THIS IS AN EX-ECONOMY.

  • Paul.||


    The economy's not dead, it's just resting.

    Threadwinner.

  • Killazontherun||

    Gobble! Gobble!

  • Invisible Finger||

    Yesterday I was thinking of the Hitler/Hilter sketch:

    "What do you think of Mr. Hilter's policies"?

    "I think he'd do a lot of good for the stock exchange."

  • Invisible Finger||

    He robs from the poor
    And gives to the rich...

    STUPID BITCH!

  • LTC(ret) John||

    Ben Bernak' Ben Bernak' riding 'cross the land!

  • Bardas Phocas||

    So we're all in agreement - we're doomed.

  • Reformed Republican||

    We are all freaking doomed.

  • ||

    No.

    I am optimistic that the economic collapse of the US will force us into smaller government.

  • ||

    Exactly. Vote Obama! For your children.

  • Pro Libertate||

    And my plans to be God-Emperor of Tampa and the Tampa Bay Area (plus Iceland) are that much closer to realization.

  • Killazontherun||

    What the Bucs did Sunday. Like a splash or reality. Delhomme really was the high point for the Panthers, and likely will be for another generation. At this point, I'm just not sure whether to jump ship for the Bucs or the 'Skins (looked fantastic), or, Hell, why not the Jets?

  • Pro Libertate||

    Join us. Turn to the pirate side.

  • Killazontherun||

    I lived in Crystal River when dad built your nuclear plant that's, uhm, had a few problems. He also built Three Mile Island.

  • OO=======D||

    "He also built Three Mile Island."

    Which killed fewer people than Ted Kennedy's car.

  • Virginian||

    I swear to god, if we play the way we did Sunday, there will be bandwagon Skins fans......

    I don't even know if that's ever happened before.

  • Killazontherun||

    Griffin looked every bit as good as Cam Newton did last year, the ability to win a game, well that's just icing on the cake. Greensboro is still as much a Redskins town as it is a Panther one.

    Oddly enough, there is even a strong Buffalo Bills contingent. They gather at our first really good wing joint that opened in the late 80's called Buffaloes every Sunday for kick ass partying.

  • Gray Ghost||

    You'd have to go back to the early '80s. I used to be able to rattle off the names of all of the Hogs.

  • LTC(ret) John||

    Do you need a militia chief or war band leader?

  • sarcasmic||

    I am optimistic that the economic collapse of the US will force us into smaller government.

    I am pessimistic that the economic collapse of the US will provide an opportunity for the collectivists to "fundamentally transform" our crony capitalist system into full blown fascist socialism.

  • Restoras||

    I think this is more likely.

  • Invisible Finger||

    To make a smaller-government omelet, you first have to break a few million necks.

  • Alien Invader||

    Only a few?

  • Chris Yoder||

    You are absolutely correct. This is why we should end the Federal Reserve immediately. They have no oversight and can do pretty much what they want with our monetary policy. Bernanke is absolutely against the free market and espouses the theory of "Great Moderation." We might as well say goodbye to our republic.

  • sarcasmic||

    Bye Republic! See you later!

  • Trespassers W||

    Does a local warlord count as "smaller government"?

  • R C Dean||

    Depends.

    How big is he?

  • ||

    My election platform for warlord of my area is going to be:

    I may rape your women and enslave your children...but you can build in wetland. My opponent makes no such promises.

  • Lord Humungus||

    it's a tough job, but I have experience in this area.

  • ||

    I don't understand why we need this.

    Shrike tells me the economy is going gangbusters.

  • pmains||

    Well, if you were a true libertarian like Mr. Soros, you'd understand that this is just par for the course. Now, I'm off to short gold and silver.

  • R C Dean||

    As a (very) short term trade, shorting PMs may (or may not!) pay off.

    As a long term trade, well, I'm hanging on to my PMs. The major fiat currencies are all tipping up into the steep part of the asymptotal curve. Draw your own conclusions about what you want to keep as a store of wealth.

  • Paul.||

    As a (very) short term trade, shorting PMs may (or may not!) pay off.

    My prediction is that the economy will go up, go down, or stay the same. Where's my consulting fee?

  • Brutus||

    I'm going with canned goods, ammo and whisky.

  • Restoras||

    Don't forget cigarettes

  • Invisible Finger||

    Gold had a $40 drop... for about 6 minutes. Is this what you meant by very short?

    (Then it went up $75.)

  • ||

    Many idiots conflate the NYSE with the broader economy. Stocks always respond positively to this sort of shit; those assholes love free money as much as anybody else. As long as that ticker stays green, people will continue to assume everything is fine/getting better.

    And what's worse, is that stocks will probably tank briefly whenever the teat is pulled out, and people will scream and gnash their teeth and blame tight monetary policy.

  • Restoras||

    This is awful.

  • mattrue||

    Open-ended or until Barack gets a second term?

  • Paul.||

    We'll talk again during the Biden administration.

  • R C Dean||

    Thanks, Ben. I've made a few thousand (virtual/fiat) dollars in the hour or so since the announcement.

    Look, folks. QE/debt monetization/monetary inflation is inevitable, and a hell of a lot more of it, from Europe, the Fed, and elsewhere than we have seen up until now. I recommend you set your investment strategy accordingly.

  • ||

    set your investment strategy accordingly.

    which is?

  • Pro Libertate||

    Cattle? People gotta eat.

  • Drake||

    So do the cattle - which is a problem when all the corn is being turned into ethanol.

  • R C Dean||

    Which is?

    To grow, or at least preserve, wealth, during monetary inflation/deflationary depression.

  • Paul.||

    My financial strategy has been to buy low, sell high.

    But keep it between us. I don't want every yahoo in the country hip to this.

  • BarryD||

    Gold just shot up $32 in a few minutes...

    Time to take all my cash savings and invest in, well, something concrete. (Not gold)

  • Voros McCracken||

    Saw that. I have a little bit saved up and don't have a clue what to do with it.

  • ||

    Local Real Estate is where I'm going.

  • Invisible Finger||

    An awful risk of property tax exposure there.

  • Tulpa Doom||

    Ammunition, antibiotics, toilet paper and peanut butter.

  • Paul.||

    toilet paper and peanut butter.

    Are those items sold in pairs?

  • OO=======D||

    No. Pairs are sold separately in the produce section.

  • ||

    antibiotics

    So which ones do i get?

    I saw some tablets online designed to put in fish tanks.

    Are those safe for human consumption?

  • ||

    Well, I guess this is great news for debtors. I definitely won't be paying off my car note and mortgage early now. I'll just wait until I can mail in a few ten thousand dollar bills.

  • Zair||

    The Federal Reserve also made clear that it will extend its current "exceptionally low" interest rate on federal funds through at least the middle of 2015.

    Dammit. I want my bank account to grow, not shrink. I should be getting a few hundred a year for my savings account, not $15. Which is less than the value lost over the same period of time due to inflation.

  • EDG reppin' LBC||

    It's called a negative real interest rate. And yes, it benefits borrowers, and penalizes lenders. Your savings account is a "lender" to your bank.

  • Gilbert Martin||

    It's also called financial repression.

    The Fed is deliberately stealing the wealth of savers to benefit borrowers.

    Especially the biggest borrower of the all - the United States Federal government.

  • EDG reppin' LBC||

    Yep. Insidious isn't it?

  • Invisible Finger||

    At least our interest rates are lower than what the Koran calls for.

  • ||

    And unlike previous rounds, this one has no predetermined end date.

    If you want a picture of the future, imagine Ben Bernanke stamping on a human face with an inflated boot--forever.

  • Pro Libertate||

    Know it sounds funny,
    But I just can't stand the wane.
    Stocks, I'm boosting you tomorrow.
    Seems to me polls
    You know I've done all I can.
    You see I begged, stole,
    And I borrowed.

    Ooh, that's why I'm easing,
    I'm easing despite expert warnings.
    That's why I'm easing.
    I'm easing despite expert warnings.

    Why in the world
    Would anybody put chains on me?
    I've paid my dues to make it.
    Everbody wants me to be
    What they want me to be.
    I'm so happy when I try to fake it.
    Yo!

    Ooh, that's why I'm easing,
    I'm easing despite expert warnings.
    That's why I'm easing.
    I'm easing despite expert warnings.

    I wanna be high, so high.
    I wanna be free of knowing
    The things I do bring blight.
    I wanna be free,
    Just me, babe!

    That's why I'm easing,
    I'm easing despite expert warnings.
    That's why I'm easing.
    I'm easing despite expert warnings.

    Because I'm easing,
    Easing despite expert warnings.
    Because I'm easing,
    Easing despite expert warnings.

  • Jesus H. Christ||

    I'm going to have to go youtube that tune. What a great song.

  • Pro Libertate||

    What's great is that a lot of the lyrics are unchanged from the original, though I did add the easings part. Lionel Richie is clearly a man of many talents, including monetary policy.

  • Paul.||

    Is he Quantitative Easing like a Sunday Morning?

  • Pro Libertate||

    Sorry, Sunday morning had to go. I cheated on a few syllables, I confess.

  • Paul.||

    You know, I'm keepin' that one:

    Bernanke, he's Easing Like a Sunday Mooorning.

  • Pro Libertate||

    There's always "mourning."

  • Pro Libertate||

    Mourning becomes elections?

  • Tman||

    Seniors living on fixed interest investments, NO SOUP FOR YOU!

  • Restoras||

    Literally.

  • NoVAHockey||

    Mr. Vice President?

  • BarryD||

    Where are the newspaper stories about seniors on Alpo?

    Or do we just see those if Romney wins?

  • sarcasmic||

    Zimbabwe here we come!

  • BakedPenguin||

    I'm pretty sure my "used guns and new ammo" investment strategy will pay off handsomely.

  • Bardas Phocas||

    That's pretty much mine. Cold iron.

    'Gold is for the mistress--silver for the maid--
    Copper for the craftsman cunning at his trade.'_
    'Good!' said the Baron, sitting in his hall,
    'But Iron--Cold Iron--is master of them all.'

  • BakedPenguin||

    Bardas and Mrs. Phocas.

  • R C Dean||

    I'll take hot lead over cold iron any day.

    But the point stands.

  • Dylan||

    "No amount of physical—or spiritual—currency, whose sole standard of value is the decree of Mr. W̶e̶s̶l̶e̶y̶ ̶M̶o̶u̶c̶h̶ Ben Bernake, will buy these cigarettes.”

  • Chris Yoder||

    Nice.

  • ||

    Tim keeps pointing out that median wealth dropped by 40%. Also i saw a link at drudge that poverty is at 1995 levels.

    If prices stay the same and everyone gets poorer how can one claim there is no inflation?

    Of course in reality everyone is poorer and prices actually went up 10% over the past 4 years. People claiming their is low inflation really are not paying attention.

  • Tman||

    And to compound the same problem, wages (such as mine) have stagnated if not dropped entirely. I'm making about 10% less than three years ago and doing twice the amount of work. I'm not alone. Many companies have had to downsize in labor, cut or eliminate bonus programs and/or overtime whilst squeezing more productivity out of the remaining employees.

    Add that to the 10% price inflation and you have your explanation for why todays lunch will consist of peanut butter and jelly sandwiches.

  • R C Dean||

    todays lunch will consist of peanut butter and jelly sandwiches.

    Oooh, look at Mr. Fancy, with peanut butter AND jelly on his sandwiches. Well, la-di-da!

  • Paul.||

    He's probably got his own business cards.

  • Tman||

    Crunchy PB too.

    Nothing but the finest. I have spared no expense.

  • ||

    "peanut butter and jelly sandwiches"

    racist!!!!!

  • ||

    Just read the linked Chapman article. Not only is there no such thing as inflation (currently), we need MOAR STIMULUS!!!

  • Mike M.||

    People claiming their is low inflation really are not paying attention.

    The only people pushing that BS are Obama-shilling liars like Krugnuts and Shrieking Idiot.

  • Mike M.||

    The place where this scumbag would still be waiting tables if we lived in a just, merit-based world.

  • Tulpa Doom||

    I picked the wrong month to stop buying gold.

  • Spartacus||

    Bullwinkle: Key Rocky, watch me pull a rabbit trillion dollars out of my hat!

    Rocky: But that trick never works.

    Bullwinkle: This time for sure...Presto!!

  • LTC(ret) John||

    (Snarling Rhino appears)

    Bullwinkle: Ooh, guess I don't know my own fiscal strength!

  • BakedPenguin||

    What really insane about this is that they're paying interest on reserves, which is stopping banks from lending. So they're creating this massive amount of money that's just sitting in bank vaults. If the banks were actually lending, and the inflation was "working" - (e.g., creating false economic activity), I could understand why they were doing this. As it is, it's as if they only want to destroy the economy.

  • Restoras||

    it's as if they only want to destroy the economy

    I see you are beginning to catch on.

  • ||

    The interest paid on reserves is to avoid having banks engage in a rash of low-interest loans (since they can get decent returns without fostering bad investment), which is helping to keep the money supply lower than it otherwise would be given the increase in the monetary base. Hell, if there has to be a FED expanding the money supply to grease the wheels of the economy I'd prefer that it operated by paying interest on reserves instead of by buying toxic assets from banks.

    By coupling repressed long-term interest rates with the lower lending rates encouraged by paying interest on reserves the expanding monetary base will be more likely to find its way into the economy through investment in the stock market. Negative real returns on bank accounts and loans means the incentive will be to go into publicly traded companies that will hopefully keep pace with inflation. By doing that, those companies might have a chance of capitalizing and increasing their productive capacity by hiring new workers or investing in new plants/machinery/etc, which means there might actually be a perceptible increase in employment and increased productivity could help keep the CPI lower than it otherwise would be given the increase in the money supply.

  • ||

    Of course if enough people ditch the stock market when things start to look really good then we're going to have another fun recession. Long-term the only real solution is bringing interest rates back up, sucking it up, and dealing with a restructuring of the economy. But for the short-term, this might be enough to ease the pain and get Obama reelected.

    Just my 2 cents.

  • BakedPenguin||

    Low rates for margin lending? No way that could go bad.

  • Invisible Finger||

    Nah, the interest is to make up (slowly) for the assets they have to write down.

    What's stopping the banks from lending is ZIRP, the interest rate exposure risk isn't worth loaning for anything but the short term. They'll do car loans, 7 year exposure to ZIRP is nowhere near as risky as 30 years, and a car can be repo'd/resold a lot easier than real estate with its property tax headaches.

  • ||

    What really insane about this is that they're paying interest on reserves, which is stopping banks from lending. So they're creating this massive amount of money that's just sitting in bank vaults.

    This really needs to be emphasized. Most of this new money has not really entered the market yet.

    I do think we have seen inflation and it has been hidden by lower demand...but also in terms of inflation forces already backed into the system we have not seen anything yet.

  • ||

    It should also be pointed out that Banks are loaned this free money and then they buy bonds with it.

    It is a house of cards on many different levels. Not just the FED paying interest on bank reserves.

  • R C Dean||

    As I understand it, what the Bernank is doing is buying $40BB of mortgage backed securities per month, indefinitely.

    IOW, this is chapter whatever of the bailout of the banking system following the real estate collapse. He's taking their garbage assets in exchange for cash.

    Now, how long he will do this before switching back over to monetizing federal debt, is anyone's guess. But this is, for now, a massive money-printing job designed to convert crap paper into legal tender.

    Never forget that the Federal Reserve Bank is the bank of banks, and acts for the interest of banks first, last, and always.

  • Brutus||

    Wasn't that what TARP was all about?

  • Reformed Republican||

    Someone more creative than me should take one of the old anti-drug PSAs that deals with addiction and withdrawal and rework it to be about inflationary monetary policy. The first hit of QE3 is a rush, followed by a crash. Repeated cash injections do not get the same high, but the addicted economy can no longer function without it, etc. Maybe at the end the economy is sucking dick in a back alley before self-destruction via overdose.

  • ant1sthenes||

    That why they call it a stimulantus

  • Ken Shultz||

    "The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions."

    I don't know what the Federal Reserve is talking about, but Barack Obama says that jobs are growing like mad.

    http://www.barackobama.com/record/economy

    How can they both be right?

  • Paul.||

    might not be strong enough to generate sustained improvement

    It's a safety measure.

    The Economy is "doing fine". However, the recover "might not" sustain the current and ongoing improvement. Bernanke is just throwing a little lighter fluid on Barack Obama's fire.

  • Bardas Phocas||

    Oh, so the chocolate ration has gone UP to 8oz a week.
    I'm so excited.

  • T o n y||

    Surely it's unfair to do anything to help the economy when Obama is up for reelection.

    Just do the same thing you did with the stimulus. QE will fail to create heaven on earth, thus it will be a total failure.

  • Paul.||

    Surely it's unfair to do anything to help the economy when Obama is up for reelection.

    Considering Obama has done nothing to help the economy during his first term, I'm not sure what your point is.

    Plus, your post assumes that QE1 not working, QE2 being an utter failure, that QE3 is suddenly, magically going to "help" the economy.

    I'm actually glad he's doing QE3, because it'll have the exact same results as 1 and 2. Obama might actually lose this thing.

  • ||

    Obama might actually lose this thing.

    The same week I abandon my conviction that Obama will lose you abandon your conviction he will win.

  • sarcasmic||

    No, no, no!

    QE1 and QE2 failed only because they weren't big enough. Krugnuts said so.

    QE3 has a chance to work because it is open ended.

    It just may have a chance to increase aggregate demand enough to kick start the economy.

    Never mind that the piles of regulations and legislation that prevents economic activity keep growing, that barriers to market entry keep getting higher, and that destroying the value of the currency rewards debtors instead of savers.

    Never you mind all those things. They are unseen. Focus only on the seen.

    Aggregate demand! Woo hoo!

  • Invisible Finger||

    Next we'll be hearing calls for the open-endedness to be pushed forward. "Can't you push some of that monthly $40 billion forward a few years?"

  • Invisible Finger||

    Can't we make Bernanke the ambassador to Bahrain or something?

  • sarcasmic||

    nice

  • ||

    When he gets the job who wants to help me make a derogatory movie depicting the life of the prophet Mohammad?

  • ant1sthenes||

    Make sure it features a chapter on Ben Bernanke's tour of duty with Mossad, helping to select Muslim children for ritual slaughter.

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