How differently would the U.S. economy have performed without the Federal Reserve's efforts to stimulate the economy through its most recent Quantitative Easing (QE) programs?
Those programs were first initiated back in September 2012, when the Fed announced that it would act for the third time to offset a weakening economy by buying up large quantities of Mortgage Backed Securities (MBS) at a rate of $40 billion per month, which we've previously described as QE 3.0. Three months later, the Federal Reserve announced that it would expand its efforts to boost the U.S. economy to avoid falling into recession by buying up large quantities of U.S. Treasury securities at the rate of $45 billion per month, which we've subsequently identified as QE 4.0 to distinguish that effort from the continuing QE 3.0.
We first tackled the question in September 2013, in which we found that the Fed's QE efforts boosted the performance of the U.S. economy by roughly one dollar for each dollar it used to buy MBS and U.S. Treasuries in its QE programs, which was more than enough to avoid what otherwise would have been a major Greek or Spanish-style contraction in the U.S. economy from the large tax hikes that took effect in the U.S. in 2013.
By the third quarter of 2013, the Federal Reserve was coming to the conclusion that it would not need to continue its QE programs, as the U.S. economy suddenly seemed to achieve some degree of organic growth that had previously been absent, above and beyond what the Fed was able to achieve. That strength continued into the fourth quarter and the Federal Reserve announced that it would begin reducing its QE-related purchases of MBS and U.S. Treasuries. The Fed has since tapered their purchases of these securities every six weeks by $5 billion per month for each type, which would see their buying activity end sometime in the fourth quarter of 2014.
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