It can’t be “working” because it has not started yet. The effects of QE are felt when the cash begins to flow, not when the announcement is made. QE1 and 2 involved purchases of Treasuries from Primary Dealers. The settlements took place the day after the transactions, and the cash was credited to the dealers’ accounts at the Fed immediately. That’s where the leverage chain begins and the effects are felt, as the dealers redeploy the cash to purchase securities. In the cases of QEs 1 and 2, they redeployed some of that cash to repurchase Treasuries or MBS, to buy stocks or futures, or to lend to their customers to do the same.
In the case of the MBS reinvestment program the MBS purchases are forwards, usually 60 days. The same is true with QE3. The Fed began purchasing the additional MBS soon after the announcement, but again all on a forward basis. The posted schedule of those transactions from the first month of the program show the first settlements take place on November 14. That’s when the cash from QE3 will begin to flow and we should start to see the negative effects of surging commodity and stock prices. That will send a signal to the market to sell Treasuries. I expect value of Treasuries to fall, in spite of the Fed’s buying of MBS. Any new program of Treasury purchases will only exacerbate the problem as the dealers and the leveraged speculating community in general will seek money substitutes.
Any beneficial effects that may come from concurrently rising stock prices should be overwhelmed by the negative unintended consequences from rapidly rising commodity prices.
Bernanke Seen Attacking Jobless Rate With QE Through 2013 – Bloomberg
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Federal Reserve Chairman Ben S. Bernanke says he’ll stoke the economy until the job market recovers “substantially.” That promise may force him to keep buying bonds until the final months of his term ending in January 2014, according economists in a Bloomberg survey.
Sixty-eight percent of 60 economists said the Fed chairman’s third round of quantitative easing will last until late next year or beyond. Just 51 percent of them said the strategy will help boost employment, with a median estimate of 116,000 jobs over the course of next year.
“The recovery in the labor market is probably going to be more sluggish than the Fed recognizes” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York and a former Fed economist. He said policy makers have “painted themselves in a bit of a corner, waiting to see a significant improvement in the labor market.”
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