Why Bernanke Won't Announce QE3

Fed Chairman Bernanke is due to speak tomorrow at the Fed's annual Jackson Hole conference. There has been lots of ink spilled about what he is likely to say, with many observers expecting him to either announce, or lay the foundation for, another round of Quantitative Easing or some other measure(s) designed to increase monetary stimulus of the economy. I think this would be a mistake.

The economy doesn't need more monetary stimulus, because what stimulus it has already received has done little to stimulate growth but more to stimulate inflation. Moreover, monetary stimulus is a very ineffective—if not useless—tool to stimulate economic growth. You can't manufacture jobs by printing money or making money artificially cheap; all you are likely to get is more speculation, more inflation, and possibly even a weaker economy in the end. Most importantly, however, there is no indication that the economy is starved for liquidity, as there has been prior to the first two rounds of quantitative easing.