Fed News Friday: QE2 EndsJuly 1st, 2011
After ten months and $600 billion of bond buying, the Federal Reserve monetary stimulus program known as “quantitative easing” came to an end. This program, intended to prevent a double-dip recession and a deflating dollar, might be considered a success given those parameters. However, the overarching goal of rescuing the economy through this problem did not manifest itself, and to make matters worse, the Fed has lowered economic growth projections below their 3% target.
Probably the biggest critic of the Fed program is former Fed Chairman Alan Greenspan, who in an interview stated that there is “no evidence” that QE2 worked, and that its lack of success would cause the Fed to think twice about attempting yet another round of quantitative easing, or risk “continued erosion to the dollar”. Supporters make the claim that the program actually helped American exports increase due to a weaker dollar, making goods cheaper in other parts of the world. This helps exports, but since America’s economy is now more import-driven, for better or worse, it hurt the average consumer. With a weaker dollar, gas and food prices have gone up, due in some part to the inflationary practices of the Federal Reverse and QE2.
Even though QE2 is over, the Federal Reserve has a nearly $3 trillion balance sheet that it is going to need to unwind to head off further inflation, which is nearly triple what its balance sheet was just four years ago. Unless that balance sheet is reduced, inflation will still run rampant, and the dollar will become more and more worthless with each passing day.