We love good communicating between the markets and central banks. Charles Plosser, the president of the Philadelphia Fed, boldly stated that he thinks that the current QE program will have limited impact on economic growth.
“We are unlikely to see much benefit to growth or employment from further asset purchases,”
So, we do not have consensus on the next monetary experiment, QE3. We do know that if you buy more Treasuries and mortgages but banks do not lend the money but hold as excess reserves, there will be no stimulus. The decision to hold more or less excess reserves is a function of expectations on investment and aggregate demand. Investment and aggregate demand may be more related to what the government can do to shift the demand curve and change expectations. Unfortunately, the choices on the fiscal side is limited and the fiscal cliff is still outstanding.
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