The Federal Reserve reaches the final hours of QE2
UPDATED INTERVIEW
STEVE CHIOTAKIS: The Federal Reserve’s bond-buying program, known as QE2, ends today. The Fed started purchasing lots of U.S. debt after the financial crisis hit. Spending more than a half a billion dollars — buying up I.O.U.’s from the federal government. The thinking was that would spur growth in the U.S. economy. Critics say, yeah, there was growth all right — it happened outside the U.S.
Marketplace’s Nancy Marshall Genzer is with us live from Washington with more on that. Good morning Nancy.
NANCY MARSHALL GENZER: Good morning Steve.
CHIOTAKIS: So did the program work as advertised?
MARSHALL GENZER: Depends who you talk to. Reviews are pretty mixed. QE2 essentially took bonds out of the hands of investors. They had to look for other places to put their money. Some went into stocks, and markets are up from last year. But these investors also bid up the price of commodities like oil and grain. And that trickled down to consumers. You and I had to pay more for gas and food.
Stephen Lewis is chief economist at Monument Securities. I asked him how the global economy was affected by QE2.
STEPHEN LEWIS: Other countries also have suffered from the impact of the rise in commodity prices on their consumers’ real incomes. So there’s the same balance playing out in all the other advanced economies.
CHIOTAKIS: So what happens now, Nancy? Without this, is a slowdown coming?
MARSHALL GENZER: Not necessarily. Some economists like Stephen Lewis say “Bond voyage,” you like that Steve? They’re really glad it’s over. They think the higher prices we mentioned outweighed any positive effects from the Fed’s cash injection. But look, it’s not like the Fed is going to stop buying Treasury bonds altogether. It just won’t be buying nearly as many as it did during QE2.
CHIOTAKIS: Marketplace’s Nancy Marshall Genzer, the pun master herself.
MARSHALL GENZER: Thank you.
CHIOTAKIS: Thank Nancy.
ORIGINAL INTERVIEW
NANCY MARSHALL GENZER: Today is the last day of the Federal Reserve’s $600 billion bond-buying program known as Quantitative Easing Two, or QE2 for short. The program was meant to boost lending and spending by injecting a lot of cash into the economy. But has it worked? And will we miss it when its gone?
Let’s bring in Marketplace’s Nancy Marshall Genzer who’s live in Washington this morning. Good morning.
NANCY MARSHALL GENZER: Hey, good morning.
HOBSON: So Nancy does the program just grind to a halt as we end the month of June?
MARSHALL GENZER: No, not really Jeremy. It’s not like the Fed is going to stop buying Treasury bonds all at once. The Fed is expected to reinvest billions of dollars as the bonds it holds now mature. But it won’t be buying nearly as many Treasuries as it did during QE2.
HOBSON: And how reliant is the economy on the help that the Fed has been providing through QE2?
MARSHALL GENZER: It depends who you talk to Jeremy. That’s up for debate. Some people say QE2 has really helped the economy. Stocks are up, because the Fed was essentially taking bonds out of the hands of investors. They had to put their money somewhere. But they also bid up the price of commodities like oil.
Some economists, like Stephen Lewis of Monument Securities, are very happy to see the end of QE2.
STEPHEN LEWIS: QE2 has been rather damaging and I’m glad to see the back of it and I wouldn’t want to see any more QE experiments being undertaken by central banks.
And Jeremy economists like Lewis are worried about a son of QE2 — some kind of QE3. But that seems off the table right now. The Fed is probably going to keep its spot as the biggest buyer of Treasury bonds. The thinking is, the Fed won’t try anything like a QE3 unless the economy takes a turn for the worse.
HOBSON: Marketplace’s Nancy Marshall Genzer in Washington, thanks.
MARSHALL GENZER: You’re welcome.
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