Political Animal


September 13, 2012 12:56 PM QE3 Arrives, With Trumpets

By Ed Kilgore

So in its usual bland language, the Federal Reserve Board announced a third round of “quantitative easing,” but accompanied with “guidance” towards future monetary policy that’s a lot more expansive than most people expected. I’ll let a very excited Matt Yglesias explain:

QE3 is here, and it’s pretty big. They’ve announced a form of “open-ended” quantitative easing in which the central bank commits to “purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.”
But there’s something much much much more important here than the numbers. It’s the guidance. It’s not the Evans Plan and it’s not Nominal GDP Level Targeting but it’s good and it’s right here (emphasis added):
“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”
This isn’t my dream of super-clear forward guidance, but it’s a huge step in the direction of Krugman/Woodford style precommitment. The key thing is that they’re no longer saying that accommodative monetary policy is conditional on the recovery being weak. Instead, interest rates will stay low for a while even after the economy recovers.

It will be most interesting to see conservative reaction to this step, which addresses one of their main alleged economic concerns, “uncertainty.” But it will also expose the deflationary monetary policies just under the surface of GOP rhetoric, particularly since markets are likely to jump happily. Even as some conservatives will (probably) succumb to the temptation of arguing that the Fed is acting politically on Barack Obama’s behalf, it will be very hard to disguise the impression that they are their own selves still cheerleading for a bad economy.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.


  • Leopold Von Ranke on September 13, 2012 1:08 PM:

    Wow! How good is this? Perhaps we'll finally see a sustained increase in demand for product.

  • rrk1 on September 13, 2012 1:24 PM:

    I suppose three years late doesn't count in the Fed world. It'll be interesting to read what Krugman, etal have to say about this tomorrow. Of course, it's too late for this awakening, if that's what it is, on the part of the Fed to have any meaningful effect on the economy before the election. A soaring stock market can't hurt, however.

  • Blue Girl on September 13, 2012 1:29 PM:

    I'll bet dollars against donuts that Rick Perry is cleanin' his shootin' irons. By the way, any word on how much damage was done to the ceiling of the governor's office when he hit it upon hearing this news, and how much it will cost the taxpayers to fix it?

  • c u n d gulag on September 13, 2012 1:30 PM:

    So, if the QE DOES improve the economy, and lowers unemployment, then wouldn't the Republicans/Conservatives have to admit that The Fed and and Government CAN AND DO what they say neither one of them can do?

    In other words, if it works, they'll cry that Bernanke is helping Obama win the election - PROVING that Obama's points about QE's and stimulus were right all along.

    And yet, they'll complain from now until Election Day.

    They're ready to, "Unleash the Cognitive Dissonance Kraken!!!"

  • Bo on September 13, 2012 1:48 PM:

    Now, if only the Congress will get its act together, we might have all the horses in harness and pulling the wagon in the same direction.
    Is that too much to hope for? If so, let's hope we can get where we need to go with the horses we've got!

  • Quaker in a Basement on September 13, 2012 2:14 PM:

    Watch out for Texans, Ben.

  • Doug on September 13, 2012 2:23 PM:

    I do believe the "markets" have already acted on this...

  • RalfW on September 13, 2012 3:34 PM:

    One suspects that the Fed and Geithner watched the two conventions and decided to back the incumbent over the idiot.

    For months I'd been worrying that they would hold off till after October to goose the economy, giving Romney a better chance and assisting the narrative that the GOP is 'better' for the economy.

    But maybe 3 days of Christie/Ryan/Romney narcissism and 15 minutes of yelling at an empty chair finally scared Timothy & Co.

  • T2 on September 13, 2012 3:38 PM:

    good news for Baby Boomer retirees......no interest income on CD's until probably 2016 at the earliest, and now the alternative - Bonds - will suck too. Take away Medicare and Social Security and we'll have a nation of old people scrambling through every trash dumpster in the nation trying to eat.

  • toowearyforoutrage on September 13, 2012 5:39 PM:


    That's kind of the point.
    We need seniors to buy some stuff, whether investments or purchases they're putting off.
    Now is not the time to be sitting on wads of cash which substantial bond investment implies.

    QE sucks, but when any economic stimulus that costs anything to implement gets blocked by Congress or Senate filibuster, it's all we get.

    Ironically, if all the seniors complaining about low interest on their bank accounts would stop buying into this austerity=prosperity BS Fox News is shoveling, they'd find their bonds would have to compete with expanding businesses hunger for loans and thus, their deposits.

    Pass the damn American Jobs Act and watch unemployment sink to 7%. I double dog dare ya, Republicans. Keynes rocks and always has. Explain the 18% drop in unemployment immediately following the Stimulus created by George Dubya and passed by the O man in early 2009 in ANY reasonable terms that don't give credit to direct pump priming.