How Much of QE2 Has Been Implemented?

By: Asha_Bangalore

A1. The Fed announced the implementation of QE2 (quantitative easing, the second round) on November 10, 2010, which involves purchases of $600 billion of longer-term Treasury securities from the private sector. As of this writing, roughly $404 billion of Treasury securities have been purchased. The rest of the planned purchase of Treasury securities (33% of $600 billion) is scheduled to be completed by June 2011. Purchases of Treasury securities, as expected, have led to an increase in the size of the Fed's balance sheet (see Chart 1) to $2.5 trillion.

Excess reserves of the banking system have also moved up to $1.217 trillion from $969 billion as of November 3, 2010 and reflect the impact of the Fed's QE2 program (see Chart 2).

Q2. What is the status of the fiscal stimulus package?

A2. The American Recovery and Reinvestment Act passed in February 2009 consisted of a $787 billion fiscal stimulus package to stimulate economic growth and create jobs. According to the tally presented in www.recovery.gov, 92% of funds have been made available and 90% of tax benefits have been implemented. The Congressional Budget Office has estimated that the fiscal stimulus raised real GDP between 1.1% and 3.5% and lowered the unemployment rate between 0.7 percentage points and 1.7 percentage points in the fourth quarter of 2010.

Congress enacted the second round of fiscal stimulus under The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, passed on December 6, 2010. The centerpiece of this legislation is the extension of tax cuts enacted under the Economic and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. This legislation extends the tax cuts for another two years and contains other provisions believed to stimulate economic activity. A 2.0% payroll tax cut will be in place during 2011, a 13-month extension of unemployment insurance and allowance for businesses to expense all of their investments in 2011 are the other highlights of this bill.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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