QEs no identifiable contribution to economic growth

US GDP growth was just revised to 2.5%. An interesting upward revision considering the recent experience of the FED wit forecasting GDP growth and the timing: imminent tapering of the QEs.

I have been skeptical of the QEs impulse for growth in the US from the start. On the other hand the FED has been over-optimistic. Unfortunately reality is closer to my view than to the FEDs.

As you can see in the next graph the FED had to adjust downwards its own forecasts of GDP growth at every FOMC meeting. But the worst part is that realized GDP growth was always lower, and sometime by a big margin, than forecasted. Therefore it is clear the FED bias in this forecasts:upwards. In fact this just confirms the existence of a central ban bias: upwards for growth and downwards for inflation.

The QEs did not work as expected for growth but managed to “hook” the financial markets. The “withdrawal” for them will be hard but necessary, otherwise we risk another financial markets meltdown but this time too close to the last one.

FEDestimari062013

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