Breakout

Is Half a Trillion Dollars of New Fed Easing Worth It?

Breakout

Whether it's pharmaceutical research, crash-testing cars or the vagaries of monetary policy, when it comes to solutions, there is no such thing as a perfect world, or a free lunch, as CNBC's senior economic reporter Steve Liesman says in the attached video.

And that holds true for Jackson Hole too, where despite its glorious visible appeal, Federal Reserve Chairman Ben Bernanke is on the cusp as making a huge decision; whether the ever-so-subtle improvement in recent economic data warrants further easing, and if so, how much bang for our $500 billion buck can we expect to get.

"What stood out to me is (Bernanke) did make a pretty formidable case for using those policy tools," Liesman says of the Fed Chairman's keynote address at the annual economic symposium in the Rocky Mountains. "The speech reads very much like, 'If I wanted to do this again there's a lot of good reasons for me to do it,'" Liesman surmises on the likelihood that the Fed will authorize QE3 when they meet in two weeks.

So, for the sake of discussion, I asked CNBC's top Fed-watcher if QE3 is presumed to be on, what might we expect the benefits to be of a half a trillion dollar package of additional quantitative easing?

According to guests and conference attendees that Liesman has spoken to, 0.2-0.3% of additional GDP growth and maybe a 0.1-0.2% reduction in the unemployment rate.

Literally translated, those guesstimates equal about $48 billion of growth within a $16 trillion economy (a.k.a. ten cents on the dollar) and a 25,000 job improvement upon an 8.3% jobless base of 12.8 million people. Hardly the stuff of a vigorous rebound, and arguably even less, when you factor in the risk of potential inflation and possible market distortion that each round of QE carries.

"But the thing that Ben Bernanke is saying is, you know what, things are tough out there, there's a lot of challenges facing the economy, what benefits we can get we should take," Liesman says of the impending ease.

While that decision is still 12 days off, the Fed and the rest of us will have a busy economic calendar to contend with next week, culminating in the all-important August payroll report on Friday.

Is it a done deal? Probably.

But Liesman points out that according to Atlanta Fed President and FOMC voting member Dennis Lockhart, "It's a very close call."

View Comments (402)