• Michael Rosen
  • Investment Insights are written by Angeles' CIO Michael Rosen

    Michael has more than 30 years experience as an institutional portfolio manager, investment strategist, trader and academic.


Published: 10-31-2014

QE3 (the policy, not a new Cunard ship) was launched 2 years ago and ended this week. The expanded it balance sheet by $1.6 trillion, or 62%.

Economists (and other, smarter people) will debate the efficacy of the program, probably forever. At the time, a large group of leading (mostly conservative) economists warned that QE3 would lead to higher inflation and the devaluation of the dollar. Well, that was wrong: inflation (from the PCE) was running at 1.5% in September 2012 and is 1.5% today. USD/Euro, for example, was at 1.29 back then, 1.28 now.

Supporters of QE (mostly liberal economists) argued then that the point of QE was to push interest rates lower in order to stimulate borrowing). Well, that was wrong too. The 10-year Treasury yield was 1.77% in September 2012, 2.34% now. Interest rates went up, not down, under QE3.

What did change in the past two years? The US economy has gained strength, and that has been reflected in the equity market. Monthly payroll growth was averaging 141,000 in September 2012, and today’s it’s 245,000. The unemployment rate fell from 8.1% to 5.9% in the past two years. And the S&P 500 is up 38%.

So, if QE3 did not have the anticipated effect of lowering interest rates, or the feared effect of runaway inflation and dollar devaluation, was it a success or failure? Again, this debate will likely go on for generations. My two cents is: neither. Perhaps it had some modest signaling value that the Fed would remain accommodative, but it’s hard for me to see any real world impact of this policy. Much ado about nothing, as Shakespeare said.

The US economy is moderately strong, inflation is low, and while there are many risks presently and on the horizon, it’s probably time (overdue, really) to abandon the zero-percent short-term rate that has punished savers for six years. The Fed will move cautiously, deliberately, but I see the coming change in Fed policy as not so much a tightening as a normalizing, and thus nothing to fear.

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