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Fed Plosser Deflates QE3

The President of the Philadelphia Fed Charles Plosser said earlier today that the Federal Reserve’s bond-buying program will not benefit growth or employment. Plosser is a non-voting member this term, but his comments have put into question QE3 as they come from a Fed member.

He has not been the first board member to criticize QE3 [1], but even critics such as the Dallas Fed President Richard Fisher who is also a non-voting member mentioned that he would have voted against it, but that QE3 would be “less impactful”. Plosser is saying that it will have no impact.

The most damaging quote for the QE3 program is the following:

“I opposed the Committee’s actions in September because I believe that increasing monetary policy accommodation is neither appropriate nor likely to be effective in the current environment,” Plosser said. “Every monetary policy action has costs and benefits, and my assessment is that the potential costs and risks associated with these actions outweigh the potential meager benefits.”

In deep contrast to Plosser’s comments is another non-voting Fed member. Minneapolis Fed President Narayana Kocherlakota stated that the Fed needs to keep rates near zero until unemployment is back to 5 percent.

Forex heatmap

Protests in Spain to oppose Austerity measures could stop the EUR/USD rally beyond whatever strength Plosser comments had on the European currency. The interesting thing to note is that sometimes proposing the austerity measures and the ensuing protests are more damaging to the currency, than what sometimes happens when the government caves to the pressure. Case in point Portugal. When a new tax was proposed for government workers the protests forced the government to abandon that plan and look for new ways to meet the deficit goals.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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