If printing money were the key to economic success, Weimar Germany would have been the richest country in the world back in the 1920s, and Zimbabwe would be at the top of the rich list today. And of course, the US would now be booming merrily away, fueled by the Fed's $85 billion a month of "quantitative easing".
It hasn't quite happened like that. The US economy is moving ahead, but apparently the rate of progress, particularly in terms of employment, is still insufficient for the Federal Reserve's liking. In consequence, and defying most pundits' predictions, the Fed has decided to maintain the QE program at its existing level for the time being. Markets have breathed a big sigh of relief, propelling equity indices to fresh all-time highs.
The good times may not last long. With the Republican party almost entirely in thrall to the Tea Party, and President Obama vowing no compromise, it seems certain that the next few months will see a series of bruising fiscal battles. A government shutdown seems almost unavoidable, and some Republicans are perfectly willing to see the United States default on its debts for the first time since the Civil War. The Fed cited the possibility of fiscal mayhem as one of its reasons for standing pat on the monetary front for now.
Looking further ahead, it's at least possible that the tapering of QE is now many months away. The fiscal follies will last through the fall, and by year-end Ben Bernanke's term at the head of the Fed will have just a couple of months to run. He may well be disinclined to make a major shift in policy at that point, particularly if his successor is to be Janet Yellen, who is perceived to be more open to maintaining monetary ease.
We will not be able to judge whether QE has been a success until we see how the US economy (and that of the rest of the world) copes without it. After today's decision, it seems we may have to wait quite a while longer to find out.
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