Why a 3rd Round of Federal Stimulus is Unlikely

With the recent economic concerns revolving around Greece and the Euro, many US investors are looking to the Fed in blind hopes of Quantitative Easement III (QEIII, the 3^rd round of Federal stimulus) in order to offset expected volatility.  Most experts believe that the stimulus did not have the effects the market was hoping for; therefore QE3 would be more money down the drain.  

The concept of Quantitative Easements I & II were treasury and bond purchasing events designed to act as a solid foundation under a volatile market.  However, when all of the dust settled, the Federal stimulus did not jump start the economy.  The stimulus was implemented as a short term solution to our struggling nation.  Today, almost 4 years after the initial Federal bailout, unemployment still hovers over 8%.   Without long term growth (unemployment drastically dropping) many experts believe that the stimulus has already served its purpose, and to act on additional spending would be a waste of tax payer funds.  Harvard’s Professor Marty Feldstein recently stated that the Fed’s actions are “not really moving actual economic activity.  Having tried it twice and not succeeded, it’s not clear there’s any reason for them to do it again.”

I believe it would be counter intuitive to act on a 3^rd round of Federal spending.  Volatility is expected surrounding the Euro for several months to come.  Added to which, several domestic issues are being put on the back burner until our new President is elected.  Congress will not act on key issues, such as tackling our excessive Federal debt, until they know the new rules of the game (how the Presidency will shape our future political platform).   Volatility is expected when Congress addresses these issues shortly after the upcoming election in November.  We all remember what happened in August of 2011 when the Dow fell by over 1,000 points on debt ceiling fears (not to mention the failing of our Super Congress).  Ironically the market fell last August just after Quantitative Easement II expired, erasing most of the gains that the stimulus brought on; aiding the argument of wasted Federal spending. 

I don’t think that the Fed will make the same mistake on a 3^rd round of Federal spending, especially when volatility (after Federal spending) will erase market gains.