The Fed's QE2 experiment, which began last September, ended on June 30 with little to show for it. Asset prices rose as the Fed's bond purchases pushed investors into riskier assets (stocks and commodities). But the prices of those assets have since fallen back down to what investors think they're worth.
The Fed had hoped that boosting asset prices would create "wealth effects," or an increase in spending that accompanies an increase in perceived wealth. But the Fed can't dictate which asset prices would rise, and liquidity flowed into commodities as well as stocks.
Thus, any wealth effect was offset by negative "income effects" as Americans suffered a decline in real income from paying more for food and energy because of the commodity-price bubble. Economic growth has decelerated over the past year despite QE2, so what good does Mr. Bernanke thinks it did? The reason I ask the question is that the focus of his monetary policy was on the “wealth effect.” Therefore, one would expect that this focus would be to benefit the average American. If this was your assumption, you would be wrong, based on equity ownership. 81% of equities are owned by the top 10%, and 91% is owned by the top 20% of households. (See the following chart.) A severe decline in the "wealth effect," caused by a bear market, would probably adversely impact the spending habits of those top 10%, which accounts for some 40% of the nation's consumer spending. Thus, one can conclude that QE1 and QE2 only benefited 11.7 million out of the nation's 117 million households.
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