Looking at how well the Fed's stimulus did

NEW YORK - Soaring inflation. A collapsing dollar. Bubbles in financial markets that would soon pop. One presidential candidate even suggesting that the Federal Reserve chairman should be roughed up.

Over the last five years, as the Fed has pumped ever more money into the financial system, critics have warned that it would lead to all kinds of disasters. Yet the central bank kept extending its bond-buying program, known by the wonky name of quantitative easing (QE). It was an unprecedented effort aimed at lowering borrowing costs, encouraging spending, and reviving a dormant economy before it could slip back into recession.

Now, $4 trillion later, QE is drawing to a close, so the question is: Did it work?

Economists have plenty of quibbles, but many agree that the Fed accomplished the bulk of its goals.

"Look at us now," says Anthony Chan, chief economist for Chase Private Client in New York. The number of jobs lost during the financial crisis has been recovered. The stock market has more than doubled, and inflation has remained tame.

At the tail end of 2008, the Fed cut its benchmark short-term lending rate to a record low to spur growth, then made a historic move. It began the first round of QE, buying $100 billion in bonds backed by mortgages every month. The Bush administration had already hatched a number of rescue programs aimed at patching up the banking system, and so the Fed's initial step met little resistance.

But the Fed's second round of quantitative easing, dubbed QE2, received a hostile reception.

In late August 2010, the economy had slowed to a crawl, and the big worry was deflation - a dangerous spiral of falling prices and wages. During a speech that month in Jackson, Wyo., Fed Chairman Ben Bernanke outlined a turnaround plan.

The Fed began buying $600 billion in U.S. government bonds that November to loud protests.

QE3 followed the next year, and the heated rhetoric increased.

House Speaker John Boehner argued that the Fed risked creating "hard-to-control" inflation, a weak dollar, and market bubbles. After entering the presidential campaign in 2011, Texas Gov. Rick Perry said it would be "almost treasonous" if Bernanke "prints more money" ahead of the election. Perry told an Iowa crowd, "We would treat him pretty ugly down in Texas."

Here's what actually happened since Bernanke made the case for the Fed's expanded effort in August 2010:

The unemployment rate has fallen to 5.9 percent, the lowest level since July 2008. In August 2010, it was 9.6 percent.

The stock market has soared. The Standard & Poor's 500 index has returned 101 percent, powered by a stronger economy, higher spending, and record corporate profits.

The dollar has held up against most major currencies. One widely used measure, the dollar index, is 3 percent higher.

Inflation has remained tame, despite all the warnings. Over the last year, overall prices have climbed a modest 1.7 percent, still below the 2 percent annual increase that the Fed targets.

Many on Wall Street have faith that the central bank will raise interest rates slowly enough to not derail the recovery.

But some economists still worry that the economy won't be ready when the Fed decides to start raising rates. "The logic of a rate hike is that employment is taking off and the Fed needs to cool the economy down," says Dean Baker, codirector of the Center for Economic and Policy Research, a liberal Washington think tank. "We're so far from that."

Even some optimists expect more market turbulence as the Fed moves closer to its first interest rate hike since 2006.

5.9%

Unemployment

101%

Gain in S&P

3%

Rise in dollar index

1.7%

Inflation rate

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