Expert Zone

Straight from the Specialists

The crippling effect of QE3

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

It was tried twice before and it is being tried once again. Whether quantitative easing (QE3) will increase employment in the United States is questionable. But it will certainly disturb currency exchange rates of emerging market economies with related consequences.

The Federal Reserve took three major monetary decisions last September. First, it will buy $40 billion  mortgage-backed securities every month indefinitely until there is improvement in the labour market; second, it extended ‘Operation Twist’ entailing purchase of long-term bonds against short-term bonds till the end of 2012; third, it will continue its near-zero interest rate guidance until mid-2015.

These measures have huge implications for the United States and for the rest of the world. They will amount to pumping in $184 billion in the three months ending 2012 and $40 billion a month thereafter. This infusion of liquidity is intended to hold mortgage rates down which are already very low.

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