Fed’s Fisher says no need for QE3

Updated on

The President of the Dallas Federal Reserve Bank, Richard Fisher said that the US economy was improving and that it would continue to improve and the Fed President went on to say that further easing by the Federal Reserve was not necessary.  Essentially this means there will be no QE3.

Fed’s Fisher says no need for QE3

“Given the improvement in the data that we’ve seen, things are getting better, not worse. I don’t see any need personally for QE3 here,” said the Dallas Fed President (Yahoo Finance).

For those of you who are not entirely sure what QE3 is or what it would have been, QE refers to quantitative easing. This means the central bank buys bonds to help stimulate the economy and get it moving again.  The Federal Reserve has already completed two prior rounds of quantitative easing.  To give you a little recap on what the Fed has done since 2008, they moved interest rates to near zero in December 2008 and they have bought over $2.3 trillion in bonds through there quantitative easing programs.

This statement comes only days after the Federal Reserve said they would be keeping interest rates near zero until 2014.  However, just because the Dallas Fed President thinks we do not need a third round of quantitative easing doesn’t mean there is not going to be one.  In other words, when Chairman Bernanke announced the other day that the Fed would keep record low interest rates till 2014, he also said that the possibility of QE3 was still on the table.  If jobs do not start to pick up soon, I would say there is a chance of a smaller version of a QE3.  However, this is not confirmed and we will need to wait and see what the Chairman and his governors believe is the right course of action.

Personally, I agree with Richard Fisher’s view of no more easing from the Fed.  We have made substantial progress in our recovery.  We have seen manufacturing pick up again, housing sales are up 3 of the last 4 quarters, unemployment is down, etc.  If the Fed further eases it could be putting the recovery at risk.  Over easing an economy can just as easily put the economy in a recession as not easing enough.  It is a tricky situation because if you ease too much or too little you could face some economic hardships.  Too little easing can drag out a recovery because there is no basis for the recovery to cement itself and begin taking over.  Too much easing could create a bubble and once that bubble pops it could easily send us into a recession.  Bottom line, I do not think we will see QE3 unless our economy takes a turn for the worst over the next few months.

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