The Uselessness of QE3. Jobless Claims Up. Core Inflation Contained.


Initial Jobless claims (week ended 9/8/2012)

– New Claims 382,000.  Previous was revised up to 367,000.
– 4-week Moving Average 375,000.  Previous was 371,750

While the jobs market recovery remains minimal, last week’s increase in New Claims  may have more to do with the  weather (Isaac) that the economy.  Note that it is the current week for which the BLS will use to gather data for the October Employment Situation Report.  Both BLS reports (Establishment and Household) use data for the week containing the 12th of a given month.

Wholesale Inflation

PPI (August 2012)
– PPI less food & energy – Month/Month change -0.2%
– PPI (overall) – Month/Month +1.7%

The large spike in overall is based largely on higher gas prices and “yes” higher gas prices affect consumer spending but those increases will dissipate.  The relatively benign core number of +0.2% indicates that inflation remains in check.

The FOMC announcement will be later today.  In my view QEIII would have nearly zero benefit apart from the fact that it affect perception. 

When we had the last round of QE (QE3) the 10-year Note yield was 2.66% the day it started (November 1, 2010) and it was 3.75% the day it ended June 30, 2011. $600 billion had been pumped into money supply.  Rates went up not down.

There is about $1.3 trillion in excess banking reserves parked at the Fed so it is difficult to see what benefit a QE would accomplish.  We are not where we are for lack of money supply.  The only motivation is for the Fed to say that it tried something.  The insistence that the Fed must try something even when it knows it is of no value undermines the purpose of the Fed.  Worse yet, this increase in money supply has to be drawn down later.