The First Round of Quantitative Easing

Yesterday, we talked about the Fed's second bout of quantitative easing and what that might mean for our economy. As we wonder whether it will work like it's supposed to, it's worth taking a look back at the first round of QE and assessing its success.

It was just after the banking-system meltdown when the Fed announced, in November 2008, that it was planning to buy $500 billion in mortgage-backed bonds, at a time when 30-year fixed mortgage rates were at 6.09 percent. The following March, it increased that figure to $1.25 trillion in mortgage-backed bonds, and 30-year fixed rates had dropped below 5 percent, to their lowest level since records had been kept starting in 1971.

So on that level, the first round has to be considered a success. In the larger sense, its success has to be measured against how bad you think the downturn would have been without it. Some economists have given the Fed’s action credit for helping to avert a second Great Depression, but on the other hand, the recession and its recovery period have been extraordinarily difficult for the American economy, even with the Fed's action. The move have may have achieved its goal, but it didn't save us from a lot of hardship.