While the Federal Reserve announced last week that its third round of quantitative easing (QE3) will consist of $40 billion in asset purchases per month, the ultimate size of QE3 remains open-ended and dependent upon the state of the U.S. labor market.
As such, Reuters conducted a poll of economists to gauge their expectations for how large QE3 will become. Forecasts from the 52 economists who responded to the size of QE3 question ranged from $250 billion to as high as $2 trillion, with the average estimate coming in at $600 billion.
When asked the level to which the unemployment rate would need to decline for the Fed to stop QE3, the average response among 47 economists came in at 7.0% (the official unemployment rate from the Bureau of Labor Statistics is currently at 8.1%).
Critics of the Federal Reserve and Chairman Ben Bernanke have noted that the Fed has yet to clearly outline how its monetary policies will specifically improve the labor market. Moreover, there is little data to suggest that printing money in the hopes of lowering interest rates even further from their near-record low levels will lead to more jobs in the U.S.
This criticism was reflected in the poll responses, as 52 of 58 economists noted that they did not lower their forecasts for the unemployment rate in 2013 or 2014 following the Fed’s QE3 announcement.
RBC Capital Markets’ senior U.S. economist, Jacob Oubina – who participated in the poll – commented that “We continue to believe that monetary policy is ineffective in influencing the fundamental economic backdrop.”
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