The Fed & QE3+ explained: new AEI Economic Outlook

"QE3+ is an operation analogous to walking a tightrope over Niagara Falls. Success will be exhilarating, but failure will be ugly" – John Makin, AEI

In his September Economic Outlook, American Enterprise Institute (AEI) economist John Makin explains how the Federal Reserve's latest round of quantitative easing (what he terms QE3+) is supposed to work, and what could go awry.

He explains:

  • Risking Inflation: The Federal Reserve's recently announced QE3+ measures to encourage economic growth and reduce unemployment demonstrate a dedication to looser monetary policy, a risky approach that could bring higher inflation.
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  • Indefinite Commitment: With QE3+, The Fed is committing to low interest rates and additional purchases of mortgage-backed securities indefinitely, until the labor market improves.
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  • Path to Success: To be successful in this approach the Fed will have to monitor inflation expectations so as to not permanently boost inflation expectations.

You may also be interested in John Makin's reaction to the FOMC statement, which can be found here.

John Makin is a long-time Fed watcher with experience in academia, financial markets, and policy advising. He has advised the US Treasury, the Congressional Budget Office, and the International Monetary Fund. He is available for interviews and can be reached at [email protected] or through [email protected] (202.862.5883).

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