QE3 is a Mistake


The Fed made a mistake today in launching QE3. This is not just my opinion. It is the overwhelming opinion of America’s CFOs.

In the Duke University-CFO Magazine Global Business Outlook Survey released September 10, 2012, we asked a key question. If your borrowing costs were reduced by 50bp [an optimist assessment of QE3], would you accelerate or increase your capital investment? 647 of 667 or 97% of CFOs said “No”.

We also asked them why? Here I quote them directly (I did not correct spelling or grammar). An extraordinary 343 CFOs took the time to respond. Here is an excerpt of some of their comments.

CFOs: We need increased growth not lower rates

  • “Forecasted sales will determine the justfication for increased investment plans
    much more than interest rates, which we feel will continue to be low for quite
    some time.”
  • “We have been getting good rates so far but I need revenue to stay consistent to
    want to invest in projects – we need the sales”
  • “We need to see reliable growth before we are willing to invest any further.”
  • “The main driver of investment decisions for us is consumer demand and/or new
    products/new market entries. Borrowing costs in an important factor, but at
    current levels not a determinant one.”
  • “We are currently in a holding pattern on capital investments regardless of rates
    until the overall economy recovers more.”
  • “The investment plans are not tied to the interest rate, but rather to sales and profit”

CFOs: Rates already low so even lower irrelevant

  • “Currently financing capital additions in the 3% range. The desired yields on a
    project just won’t be effected by couple points of interest cost one way or the
  • “Rates are already so historically low that there is not room to lower them enough
    to make a significant difference.”
  • “The interest rate will not fluctuate that great to influence our decisions in this area.
    We already have exceptionally low financing available to us. Our weighted average interest rate on debt is currently the lowest in our history.”
  • “We have a stated strategy and borrowing costs would likely not cause us to
    accelerate our plan.”
  • “Rates already extremely low – further reductions can only be minimual and will
    not drive investment decisions.”
  • “Borrowing costs are already very low. Overall economy is weak not warranting
    any need for additional investment.”
  • “Interests rates are low enough for investments to be made. However, near and
    mid term economic conditions do not allow for these decisions to be executed at
    this time.”

CFOs: Uncertainty and regulatory climate hurts investment

  • “We need a better economic and regulatory climate. A decrease in interest rates is
    not what we need.”
  • “Interest rates already at historic lows. It’s not high interest rates that are holding
    us back, but uncertainty about federal policies and loss of financial wealth of our
  • “Too much economic uncertainty – want to be able to respond should the fiscal
    cliff scenario occur in the US.”
  • “It is not interest rates but ROI and uncertainty.”


It is amazing to me that all of the focus is on interest rates – when these rates are at a 50-year low.

In order to make substantial progress on job creation, we need economic growth. The key to economic growth is capital investment. In a separate part of the survey, CFOs indicate a level of capital investment over the next 12 months that is insufficient to make a dent on the unemployment rate.

Even if QE3 is successful in lower rates, it will fail to spur capital investment. While the Fed will spend $85 billion a month, the CFOs say they will have nothing to show for it.

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