QE3 does not help the FED’s own forecasts

The announcement of QE3 (third round of quantitative easing) has sparked another round of heated debates about its effects. There is no consensus and the views go from positive effect on GDP and employment to hyperinflation. But what does the FED think? We know the official rhetoric that QE3 was necessary to help the economy grow and reduce unemployment.

The FED’s own forecasts show a different view. The graphs below (they are from the ECONOMIA 17.09.2012 report of FLORIN CITU ADVISORY) show how FED saw GDP growth and unemployment every time the board met and took a decision on interest rates.

For example in April 2011 the FED estimated GDP growth to fall in both 2012 and 2013 relative to the estimate made on January 2011. Even though the FED was just starting QE2. In fact throughout QE2 the FED lowered growth forecast for 2012 and 2013 from one meeting to the nex. The same happened during Operation Twist.

What does the FED think about QE3 impact on GDP and unemployment? Not much. The FED thinks that even with QE3 the GDP growh in 2012 will fall relative to the previous estimate while for 2013 it forecasts a very small improvement versus the June 2012 estimate. WE observe a similar story by looking at the unemploymenet graph. The QE3 does not improve on the unemployment estimates for 2012 and 2013 made by the FED in June 2012.

If even the FED does not think QE3 will help why all the fuss then?


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