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Federal Reserve announces QE3

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Today, news of nothing less than the future of the American economy. It comes to us — as it usually has the past four years or so — in the person of Ben Bernanke and the Federal Reserve. The Fed wrapped up a big meeting today by doing what a lot of people had been hoping it would do. The central bank’s going to try one more time to kick the economy into gear. It’s gonna buy up debt — bonds, that is — drive long-term interest rates even lower, thereby convincing people, and banks, it’s OK to borrow money and spend it.

A lot of people are wondering whether this third round of quantitative easing will help out the jobs situation here in the U.S., but the fact of the matter is, the Fed is really just helping the markets, because that’s all it can do — it has no power over the economy. Think of the Fed as the Cookie Monster. It’s giving the markets a sugar rush.

“The problem is that the Fed doesn’t have anything nutritious on its shelf right now,” said Anthony Sanders, a finance professor at George Mason University and a senior scholar at the Mercatus Center. “They’re just doing sugar highs. The stock market is getting a sugar rush. But the economy can’t thrive on sugar rushes. It thrives on nutritious foods, which the Fed can’t give out.”

The Fed acknowledges that it can’t fix employment. Its only hope is to make it easier for corporations to borrow money, or boost the housing market. The Fed hopes that those moves will create the kind of confidence that will lead to more hiring and more spending.

Either way, QE3 won’t have any effect on the economy before Election Day this November. Ben Bernanke, the Fed chief, said the stimulus will be open-ended, so it could go on for three months or 30. He’s watching the entire economy to see if it improves. It will take more than just one economic measure to know when it has.

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