A new study by Swiss Re argues that the quantitative easing economic stimulus policies might not have been worth the cost. The report Swiss Re published argues that the U.S. has lost $470 billion in interest rate income since the quantitative easing policies were enacted and the Federal Reserve set interest rates at near zero levels. Another concern is that many benefits promised by public pensions funds may be cut as a result of the QE policies. Lastly, they argue that the strong stock market growth since 2008 has mostly benefitted the wealthiest people and that those gains have not resulted in increased consumption and economic growth.
What does this mean?
The debate around the effectiveness of the quantitative easing policies is heating up as the U.S. looks to exit the measures and increase interest rates within the year. Exiting is a complex situation where the Fed wants to raise rates, but at the right time and without economic fallout and causing the stock market to fall. Near-zero interest rates and large-scale asset buyback programs have still resulted in weak growth rates of .6% annualized in the U.S. and 1.5% in Japan. This is not to say that the economies of the U.S. and Japan have not drastically strengthened since the global economic crisis, but that the QE policies may not have increased growth to the level expected when they were enacted. Further evidence of weak growth is that corporate earnings have not improved with a profit decline of 5.5% annual rate in Q4 2014 and the U.S. stock market was flat in Q1 2015.
Why should I care?
While the verdict is still out on the cost/benefits of the QE policies, the U.S. economy has undoubtedly strengthened since the recession. The full cost of the policies is still unknown, and as the Fed looks to exit and increase interest rates, U.S. consumers are poised to feel the affect of the exit. Investors in the U.S. have experienced a stock market boom in the past few years, although it has stagnated since the beginning of 2015. Whether the economic stimulus policies have helped all U.S. investors or just the wealthiest is debatable.
One way individual investors can gain from the QE policies is to sell stocks since the market may have stagnated and might fall off its highs once the Fed increases interest rates later this year. Another opportunity would be to sell any U.S. dollar investments since the increase in interest rates might cause the strong dollar to fall.
Originally posted as part of the Finimize daily email.
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