As Fed plans to purchase $40 billion worth of mortgaged-backed securities (MBS) as a tool of quantitative easing, the action is forecasted to continue until the economy improves. With the rate of unemployment projected to remain above 7 percent for next two years and as Fed plans to pull the rate beneath the benchmark level, the QE3 is thus projected a life of at least two or even more years. According to market analysts, the volume of this stimulus measure, execution of buy back of MBS, may exceed the worth of QE1, i.e., 1 trillion USD.

As a measure of quantitative easing, buyback of MBS shall be directly supporting housing market and the entire financial system, key or thrust areas for economic recovery and eventually reduce the polarization of treasury yield and housing financing cost. This move shall provide an ample room and ease for refinance facility and provide some relief to indebted U.S housing sector.

Amidst ongoing QE3 regime, the prices of commodities, especially agro and oil have rallied significantly. With the effects of inflation to be felt with the booming prices of commodities, the emerging economies and more especially middle to low income group people of emerging economies are going to feel the burning pressure of rising price levels. With existing lower income level, the consumption of commodities in emerging nations shall decline significantly with increasing inflationary pressure. On the contrary, the pressure is expected to be felt at lower level in developed economies. Despite developing economies are having slower economic growth rates, the inflationary pressure in these economies may force them to tighten their monetary policies to adjust the price level and may even degrade their current slower pace of economic growth.

The QE3 also poses serious threats to the financial sector of emerging economies in the form of ‘risk of capital flight,’ which may subsequently result in severe financial crisis. Thus, the QE3 though expected to support and stem the ongoing economic downturns in the U.S, on the other end it will be affecting other parts of the world in many challenging manner. Economists and market participants from emerging nations are expecting counter-inflationary measures resulting off U.S stimulus to protect their economic prosperity or at-least put a halt on further economic downturn.