Qe3 what should i buy

Or, if you are already a subscriber Sign in. Other options. Close drawer menu Financial Times International Edition. Search the FT Search. World Show more World. US Show more US. The QE3 move comes after Bernanke has repeatedly urged Congress to do more to support the recovery in the short term, while still addressing the country's debt problem over the long term.

But Congress has done little to heed his advice, and given it's an election year, they're not expected to act anytime soon. Economists often cite the threat of fiscal cliff as one of the key reasons businesses remain reluctant to hire new workers.

The Fed may have acted Thursday, partly to offset the drag from fiscal policy. In implementing QE3, the central bank does not use taxpayer money to buy bonds. Rather, it expands the U. He objected against the forecast and QE3. He has dissented at every Fed meeting since January. Bernanke's QE3 announcement in 90 secs. Personal Finance. The Federal Reserve has tried quantitative easing twice before, thus earning this round the designation QE3.

To buy bonds, the Fed essentially creates money from nothing, paying for its purchases by crediting the accounts of banks from which it buys the bonds. If companies use that money to buy equipment, and households use it to buy homes and cars, the economy gets a jump.

Fed bond-buying also helps the economy by pushing down borrowing costs. QE1 and QE2 had big effects, because they came when expected inflation was well below 2 percent and falling; QE3 has not, because expected inflation was already around 2 percent. But wait. The Fed unveiled the Evans rule back in December, telling us it wouldn't raise rates before unemployment falls to 6. In other words, isn't the Fed's 2 percent inflation target really a 2. Not exactly. The Fed is telling us it will tolerate 2.

The best way to figure out what the Fed wants is to listen. After all, it tells us what it thinks will happen with GDP, unemployment, and inflation over 1, 2, and 3-year periods. Now, it's GDP and unemployment predictions have been, in the spirit of generosity, a tad optimistic , but not so for inflation which, not-so-coincidentally, is the only above variable the Fed controls directly.

The chart below looks at the Fed's core PCE inflation projections since late ; upper-range estimates for 1, 2, and 3-year periods are in red, and lower ranges ones are in blue. This is what a 2 percent inflation ceiling looks like.

There's a lot going on here, but there's a depressingly simple message in this chart: QE3 isn't working, because the Fed doesn't want it to work.

The Fed revised its inflation projections up after QE1 and QE2, and markets followed; the Fed has kept its inflation projections steady after QE3, and, again, markets have followed. Now, this doesn't mean QE3 is entirely useless -- it's at least stopping inflation expectations from falling -- just that it could be doing much more if the Fed let it.