What does qe3 do

This time around, the Fed tied its bond-purchase program explicitly to jobs, saying it will keep buying bonds until it sees a substantial improvement in the labor market. Most studies show that quantitative easing does reduce borrowing costs, as measured by the yield on year Treasuries. Studies are less clear on how much those lower borrowing costs translate into real economic improvement, such as the creation of more jobs.

Politicians in other countries have complained that U. By Reuters Staff 4 Min Read. Fewer shares and the same profitability mean greater earnings per share usually raises the stock price. However, refinancing loans and stock buy-backs does not create new jobs. So the financial institutions are sitting on a huge amount of money that few companies want in a mediocre economy. The financial institutions have resorted to investing in the stock market to get a good return on all their money that is being unused.

This also does not create new jobs, and it creates a stock market bubble, that is why the stock markets panic when the Fed says it will taper QE. This creates controlled inflation and higher interest rates. That will in turn give incentives for financial institutions to buy back all the government bonds and mortgage-backed securities the Fed holds.

When these buy-backs occur, then the money the Fed effectively created gets cancelled out. This eliminates the concern about too much money in the economy. If growth is mediocre as it is now, the Fed will have to monetize the QE. This will accelerate inflation, and hurt our economy and citizens. A: The Fed has created all this liquidity to help stimulate the economy.

At first, it had a positive effect the refinancing of loans helped companies get profitable faster. The stock buy-backs improved share prices. This made investors put money in stocks. However, without very good-to-robust growth in the economy, the continuation of QE is having a diminishing positive impact on the economy. Buying mortgage-backed securities could take these off banks' books, possibly boosting lending and spending.

Consumers may find it easier to refinance and buy new homes. All of these things have a ripple effect on the economy. As the economy grows, hiring grows. By saying they may keep doing what they are doing until the ripple effect gets to the job market, the Fed is hoping to provide some certainty to employers and investors. It all sounds squishy because it is. We don't know if this will work and create more jobs.