After spending about $2.3 trillion in stimulus since 2008, the Federal Reserve’s controversial quantitative easing (QE) strategy’s days may be numbered. MarketWatch expected a decision on the policy from the Fed on Dec. 18, following their two-day meeting.
The policy has many critics including the former Fed employee who lashed out at it in a “Confessions of a Quantitative Easer” op-ed. Studies also show that QE hasn’t been the economic stimulus the Fed had hoped. Yet, when the broadcast networks have discussed how QE impacts the economy they almost unanimously supported the Fed’s purchase program.
In three months of coverage, from Sept. 1 to Dec. 1, ABC, CBS and NBC news programs were overwhelmingly positive about the Federal Reserve spending $85 billion per month. Out of 11 stories that discussed the effect of QE on the economy, 10 of them were positive (91 percent), while only one suggested continuing the fiscal policy could harm the economy. An additional 13 stories during that time mentioned QE, but did not discuss its relationship to the economy at all so they could not be viewed as positive or negative.
Despite the broadcast network’s positive portrayal of QE, academics and even former Fed officials have criticized the efficacy of the program and described it is a massive subsidy to big banks and Wall Street.
The Federal Reserve announced Sept. 18 that it would continue QE, although there had been much speculation that it would begin to taper the program. ABC’s George Stephanopoulos praised the decision on “Good Morning America” Sept. 19. He called it a “welcome surprise to traders that kept markets climbing around the world.”
Like Stephanopoulos, the networks overwhelmingly supported the Fed’s quantitative easing process, heralding the continuation of Fed stimulus as good news. They emphasized its role in supporting the economy and boosting the stock market.
Prior to that September meeting, the networks hyped the extent that the Fed helped support the economy and create jobs. On Sept. 6, CBS Senior Business Analyst Jill Schlesinger told “This Morning” viewers that “It’s like the economy is an athlete and we’re injured, and the Fed’s been pumping steroids into that athlete until the athlete’s better.”
Later on ABC’s Rebecca Jarvis also praised it for boosting the stock market, saying on “Good Morning America” Nov. 18, “The last six weeks, stocks have gained every single week. And a big part of this is the Federal Reserve continuing to pump billions of dollars in stimulus into the markets.”
Of the 11 network stories that discussed QE’s effect on the economy, only one NBC story indicated possible problems. NBC’s Savannah Guthrie suggested the decision to continue the policy could have negative consequences on “Today” Sept. 19. She said the Fed’s announcement to continue QE “has spurred a global rally in stocks. But it may not necessarily be good news for the economy.” But Guthrie did not explain why the continuation might be bad news.
QE: Not So Stimulative
Under quantitative easing, the Federal Reserve has spent billions on bank assets and bonds each month since late 2008. The purpose was to increase bank reserves and lower interest rates for loans and mortgages. By lowering interest rates, the Fed hoped to help consumer and business spending and borrowing, ideally stimulating the economy and creating jobs.
Critics generally described quantitative easing as ineffective, despite the incredible amount of money involved. The financial paper Investor’s Business Daily reported on Aug. 19 that two Fed economists found QE’s benefit to the economy was “virtually nonexistent.” The economists analyzed the second phase of quantitative easing (QE2), between 2010 and 2012, and found that it“likely boosted GDP by a mere 0.13 percentage point,” resulting in $200 billion added to the economy. Not a lot of bang for $600 billion.
Moreover, one academic study into quantitative easing found that the program was actually harmful to the economy. Dr. Robert E. Hall, Stanford professor of economics and senior fellow at the Hoover Institution, argued that “an expansion of reserves contracts the economy.” When the Fed buys assets as part of quantitative easing, it swells the amount of money that private banks have on reserve. According to Dr. Hall, these increasing reserves actively damaged the economy.
Rather than restoring the overall economy, some say quantitative easing has benefited a particular group of people: wealthy bankers. Andrew Huszar, who managed Fed security purchases in 2009 and 2010, explained this phenomenon in a blistering critique of quantitative easing published in the Nov. 11 Wall Street Journal.
Huszar claimed that QE provided “only trivial relief for Main Street,” while it was “an absolute coup for Wall Street.” Building on Hall’s criticism, Huszar explained how the banks, despite growing reserves, “were only issuing fewer and fewer loans” and weren’t “helping to make credit any more accessible for the average American.”
In the end, Huszar argued that, as a result of quantitative easing and its benefits for big banks, “the Fed had lost any remaining ability to think independently from Wall Street.”
Despite such benefits for Wall Street, many bankers are still critical of the program or at least of its continuation. According to the Des Moines Register, Mark Vitner, Wells Fargo’s senior economist, claimed that uncertainty over the end of quantitative easing “is creating a lot of angst for businesses and households, and folks are putting off key decisions.” He said the policy had done all the good it would and that it was time to “rip the Band-Aid off.”
In addition, Barry Sternlicht, CEO of the investment firm Starwood Capital Group, likened quantitative easing to “a heroin addition” in a Nov. 5 CNBC interview. He urged the Fed to discontinue the program, saying “It’s not good. This is not good, and – and this is not smart.”