QE1, QE2, QE3:
In 2008, Federal Reserve Chairman Ben Bernanke made his first step on the Quantitative Easing (QE) ladder in an effort to create more economic activity and higher home prices.
QE1 was initiated in November 2008 and ran until March 2010. During that time, the Federal Reserve snapped up $2.1 trillion worth of mortgage-backed securities and Treasury bills.7
After QE1 ended, many experts expected the economy to sputter to life and for mortgage rates to rise. Contrary to expectations, mortgage rates tumbled.
When the economy started to weaken, Bernanke enacted QE2. Between November 2010 and June 2011, the Federal Reserve printed an additional $600 billion.
In September 2012, QE3 was announced, and this time, it’s open-ended. You could even call it QE Eternity. How long will the Federal Reserve continue to prop up the U.S. economy? As an open-ended operation, the Federal Reserve is printing $40.0 billion a month to purchase mortgage-backed securities. This is in addition to Operation Twist, where the Fed swaps short-term securities for longer-term securities. It said it would also hold interest rates near zero until at least mid-2015.
To date, the Fed has printed off close to $3.0 trillion. That number climbs by an additional $85.0 billion each month.
Is the third time the charm? Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s third round of bond purchases will probably fail to create jobs while risking higher inflation.8
QE was enacted to effect real structural changes in the U.S. economy. It was supposed to increase lending, create more jobs and lower the unemployment rate. If this is the barometer of success, then QE has done the reverse.