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Fed Delivers another Big Dose of QE

September 18, 2012

From the United States, to Europe, to Asia, the world economies are being juiced by the easy monetary policy drug.

-Scott Colyer, chief executive officer, Advisor Asset Management

 

Doping..Bad for Athletes; Great for Economies.....What will the Hangover Feel Like?

Yesterday, the Fed delivered the much anticipated dose of Quantitative Easing (QE) announcing that it would continue to buy U.S. Agency Mortgage Backed Securities (MBS) in an effort to further drive growth in the U.S. economy and decrease the ranks of the unemployed. The monthly purchase rate of $40 billion will be in addition to the already $10 billion that is being reinvested from QE 1&2 in mortgage-backed securities. This new money balance sheet expansion by the Fed accompanies additional guidance that the Fed would stay low on interest rates likely until mid-year 2015. Even more enticing is that the Fed will maintain the "punch bowl" long after the economy begins to heal. What are the short and long-term effects of this historic action? Will the hangover be worth the party? How should an investor look at this?

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