The Economist Â judges that it is workingÂ . Long term interest rates have fallen since Bernanke announced the Fed was going to restart the printing press, usefully making the US government deficit a tad easier to finance. The stock market has been juiced, which may have a wealth effect on aggregate demand. And the US dollar has fallen against currencies that float against it. In short, there may be a modest positive impact on US growth and employment.
“Under QE the Fed buys long-term bonds with newly created money. This lowers long-term yields and chases investors into riskier, alternative investments. The real yield on ten-year, inflation-indexed Treasury bonds has fallen from 1.05% to 0.5%, a result of relatively flat nominal yields and a rise in expected inflation. The yield on their five-year cousins is negative…Â Share prices are up by 14% in the same period. Lower yields make the dollar less appealing: it has duly fallen by 5% against the Japanese yen, by 9% against the euro and by 5% on a trade-weighted basis.”
Over at the FT, Martin Wolf has also jumped to the Fed’s defence.
“Boiled down, the criticisms of the Fed come down to two: its policies are leading to hyperinflation; and they are â€œbeggar my neighbourâ€, in consequence, if not intention.