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Federal Reserve ends its stimulus

Federal Reserve Chairman Ben Bernanke participates in a press briefing at the Federal Reserve building in Washington, D.C.

Kai Ryssdal: Nobody will ever accuse Ben Bernanke of being a gripping public speaker, but then again the chairman of the Fed didn't have much cheery news to relate at his press conference today.

Ben Bernanke: The economic recovery proceeding at a moderate pace, though more slowly than the committee had expected. We expect the unemployment rate to continue to decline, but the pace of progress remains frustratingly slow.

This was Mr. Bernanke's second post-interest-rate meeting news conference. It was also kind of a retirement party for the Fed's latest try at kick-starting the economy -- what's technically called quantitative easing, usually shortened to QE2.

The central bank's purchase of $600 billion worth of Treasury bonds is its second such effort since the recession began. It goes away in about eight more days, the end of June. So, how did it work? Marketplace's Jeff Horwich has the story.


Jeff Horwich: Last fall, the Fed's normal tools for juicing the economy were exhausted. So Bernanke pitched something like the Japanese had tried: buying up $600 billion of government Treasury bonds. The idea was to raise their price, which lowers long-term interest rates and -- in theory -- causes more lending and borrowing.

Economist John Canally at LPL Financial says the policy's legacy will be the disaster it averted.

John Canally: Well I think it helped to reinvigorate the economy at a time when there was a pronounced soft spot. I'd probably agree with Bernanke that had they not done QE2, we'd be much worse than we are today.

Canally points to a stock market rebound in the meantime, and today's modestly rising prices -- a sign the policy met its goal of avoiding deflation.

But Mike Englund of Action Economics says nobody could argue the economy is much better with unemployment at 9.1 percent. By spinning its wheels and seemingly fixing nothing, Englund says the main effect was to hurt the Fed's credibility.

Mike Englund: The fact that the economic outcome was so poor, the perception effect was probably far more negative than any direct stimulus effect was positive.

Berkeley economist Brad DeLong says QE2 deserves credit as an interesting economic experiment. And... that's about it.

Brad DeLong: It did what we expected it to do. It doesn't do very much for unemployment and growth, but then $600 billion was always an order of magnitude too small.

DeLong's one of those who'd like a more ambitious "QE3" from the Federal Reserve. But as for the prospects, most economists do agree: Don't bank on it.

I'm Jeff Horwich for Marketplace.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.
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