If the Fed is truly intending to manipulate the yield curve they are failing spectacularly. Ultimately, this is the primary goal of QE – to reduce rates and ease monetary conditions so that business investment and borrowing becomes more attractive. With QE2 officially starting today, however, bond yields are higher across the curve than they were when Ben Bernanke gave his Jackson Hole speech. This is exactly what we saw during QE1, QE in Japan and QE in the UK. In none of these cases did business borrowing pick-up substantially. Higher interest rates are certainly not helping the cause here. This is just one more sign that QE will do nothing to help the real economy:
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.