Federal Reserve’s QE3 was an Unequivocal Success

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There should be no question that QE3 initiated in September 2012 and expanded in December 2012 to $85 billion per month was a success. The revisionists who dispute this don’t have the facts on their side. In the third quarter of 2012 a key indicator for future corporate profits, ISM Manufacturing, turned negative. Due to this Global Perspectives initiated concerns warning that 3Q-2012 earnings growth were at risk of being negative for the first time since 3Q-2009. As the third quarter earnings season progressed it looked ominous and then when the final reports came in for the S&P 500, in fact earnings growth was negative. Earnings growth tends to trend in one direction for long periods of time so a single negative reading is a precursor to a profits recession and worse – a bear market. The Fed’s extraordinarily aggressive QE3 came at the right time, lifted investor enthusiasm, bolstered business confidence and consumer spending. Earnings growth rebounded the very next quarter and has continued to be positive since. While QE3 doesn’t get all of the credit it was the right medicine at the right time. QE3 was an unequivocal success. Meanwhile, U.S. GDP handily beat expectations at 3.5 percent. Please see page 45 of the Voya Global Perspectives book, "Monetary Policy," to compare the Federal Reserve’s balance sheet expansion to the ECB’s balance sheet contraction.

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