What is worrisome about Quantitative Easing

What is worrisome about Quantitative Easing

Banks are sitting on $1.6 trillion in reserves and credit standards remain tight following the financial crisis. 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. Economists often cite the threat of fiscal cliff as one of the key reasons businesses remain reluctant to hire new workers.

“We’re looking for policymakers in other areas to do their part,” Bernanke said at the press conference. “We’ll do our part and we’ll try to make sure unemployment moves in the right direction but we can’t solve this problem by ourselves.”

The Fed may have acted Thursday, partly to offset the drag from fiscal policy.

In implementing QE3, the central bank does not use taxpayer money to buy bonds. Rather, it expands the U.S. money supply and electronically credits banks with more funds.

Of the Fed’s 12 voting members, Richmond Fed President Jeffrey Lacker was the only one to oppose Thursday’s decision. He objected to the 2015 forecast and QE3. He has dissented at every Fed meeting since January.

Source: CNNMoney