The continuation of QE3 without tapering can have advanced effects on the economy. This is because it has shown very little improvement. This is evidenced through the report from the U.S. fixed income at Los Angeles which manages more than $128 billion. According to this body, QE3 was meant to target unemployment and the labor market. Nevertheless, the program was also designed to increase in the interest rates and slow or bring to and end the economic recovery. For instance, the program has helped to the fall of inflation rates in the U.S.
According to (Zumbrun and Catarina1) on the markets, bonds exhibited higher volatility than they had in the previous just by mere mention of tapering by Bernanke. He also noted that the policy-setting FOMC probably would focus on reducing bond buying rate for the in the last quarter of the financial year as observed by many economists according to Bloomberg dated 9th, august 2013. However the initially, it can focus on cutting monthly purchases by $10 billion to a $75 billion rate, according to the median estimate of 48 economists (Zumbrun and Catarina 1).
Another effect is that it leads to unemployment fall. For instance, Bernanke (1) argued in June that the reduction in asset purchases may come that year if economic performance improved as projected. Joblessness had declined to 7.4 percent from 7.8 percent in September, the month which FOMC announced its third round of bond buying. Payroll growth during the past six months had averaged about 200,000 compared with about 141,000 in the six months before September 2012.
Furthermore, it leads to increase in treasury yields. For example, yields on the 10-year Treasury note climbed to a two-year high on speculation that the FOMC would slow its purchases month which followed. Nevertheless, benchmark 10-year yields were little changed at 2.88 percent after climbing to 2.93 percent, the most change experienced since July 2011. This was up from 1.63 percent on May 2, as reported by Bloomberg Bond Trader prices.
With every 200,000-plus jobs report that came out over the past few months in 2012, the odds of the Federal Reserve focusing on the third portion of the financial year, the QE3 appeared to be going down as time progressed. In Wall Street Journal most recent survey of economists, conducted in March, just after it was learned the economy added 227,000 jobs in February, 61 percent of respondents argued that the Fed would not pull the trigger on QE3, up from 50 percent in January. Recent surveys of primary dealers by the New York Federal Reserve show a similar decline (Ronald all).
Moreover QE3 led to increase in home prices. For more than six years, the home prices increased in nearly all the second quarters of the financial years this is with reference to S&P/Case-Shiller index. The index also provides that this the home prices increased for more than 20 cities following the QE3 continuation without tamper. Investment grade bonds on the other hand, went down with a rate of 2.76% following the QE3 effects by the last quarter of 2013. Nevertheless, QE3 also affected the investment grade investment which fall to $900 as compared to other years (Jeff etal all).
QE3 continuation is said to have effects on mortgages that is it is predicted to lower the interest rates for mortgages. Fed predicts that it will be buying approximately $40 billion mortgage backed securities monthly till the labor market improves. This is to imply that the QE3 will assist many people to refinance their home loans.
So far, QE3 has helped Fed in protecting modest gains in housing marketing which is deemed to provide more wealth to the households. Fed feared slowing and ending QE3 since this could lead to increased rates of mortgage backed securities. The rate on 30-year mortgage rose from 3.35% to 4.5% within eight months in 2013. As a result, Fed decided not to tamper with the QE3 something which saw the rates start falling in September (Ronald all).
(Ronald all) argue the QE3led to fall of bond yields and rise of issuance by the fourth quarter particularly at the end of September. Total dividends went up from $247.3 to $275.8 billion. These changes were subject to the data provided by FactSet which is a data company in Norwalk to the Securities and Exchange Commission.
Work Cited
Ronald, McKinnon. Tapering Without Tears—How to End QE3. The Wall Street Journal. Oct. 27, 2013. Retrieved from http://online.wsj.com/news/articles/SB10001424052702304799404579153693500945608
Zumbrun and Catarina, Saraiva. Fed Seen Tapering Quantitative Easing Next Month. Bloomberg Business Week. Aug 14, 2013. Retrieved from http://www.bloomberg.com/news/2013- 08-13/fed-seen-slowing-qe-in-september-by-65-of-economists-in-survey.html
Jeff Kearns, Caroline Salas Gage and Catarina Saraiva. Fed Seen Paring QE to $75 Billion Pace This Month, Survey Shows. Bloomberg Business Week. Sep 6, 2013. Retrieved from http://www.bloomberg.com/news/2013- 08-13/fed-seen-slowing-qe-in-september-by- 65-of-economists-in-survey.html
