The Fed has a dual mandate of price stability and full employment. They are failing miserably at both, although I really don't think it makes any sense that a central bank is responsible for employment. A country's fiscal policies, tax laws, educational system, incentives, and the like are the backbone for job creation - not where the Fed's interest rates are. But I digress.
If you listen to the propaganda from the Fed they believe they have created 3M jobs via QE's. (If true - why don't they just 'print' another $10 trillion and then every American will have a job.)
They also believe (or at least say in public) QE has nothing to do with the price increases in commodities; even though the stated intention of QE2 (via editorial by the Bubble Blower in Chief) was "an increase in asset prices". (i.e. manipulation) Only in their convenient world does QE increase asset prices in the stock market BUT NOT commodities. Living in ivory towers is an awesome experience.
Now while the unemployment rate has dropped the past few months (sharply in fact) much of this is due to the fact the labor force participation rate has dropped. We've lost a few million Americans, who have simply gone missing. It appears some of them (1M or so) have enrolled into disability the past 2 years - which is helping the unemployment rate drop, but has nothing to do with job creation. So the unemployment rate falling has been happening mostly for the wrong reasons... sorry Ms. Yellen.
I cannot find the original post but back in the fall of 2010, as I thought how this would work out, I opined it would very plausible then as QE plays out, it could actually hurt the job market rather than help it. In this piece from October 2010 I wrote:
Profit margins are going to be squeezed as this (price increases) begins to filter through the system - the Chicago PMI is already showing it. (remember, my outlandish theory is as corporations work to protect profit margins, as input prices surge they will begin a new round of labor cuts - thanks Ben!)
Again this February:
If job cuts (to protect margins) are the ultimate outcome of central banking easy money policies, the irony will be fantastical....
Again in March:
Ironically the more QE to come, the more speculators will drive up commodities.... which will impair corporations (who might cut jobs to preserve profit margins) and consumers... which (in the Fed's mind) will require more QE. Circular logic anyone? But in The Bernank's view his actions only make the stock market go up and not other assets (read: commodities) so he won't make the connection.
I keep using the word irony because this band of economists seems to be lost. While they chant for higher inflation as an official policy goal, they are simply imposing a tax on countless people who cannot afford these pricing pressures. The reality is that they are aiming for a misguided "wealth effect" mantra that helps the top 10% (and especially top 1%), which is simply a corrupted offshoot of "trickle down economics" dogma (clearly a massive failure for anyone in the bottom 2/3rds of this country the past two decades).
This "tax" they are creating, has the potential to cause corporations to pull back on hiring, as Wall Street pressures them to hit earnings targets and protect margins. Obviously this is inverse of what the Fed mandate is. Let us see how the hiring picture plays out in the next 3-6 months to see if my theory is playing out.
In my opinion the best thing the Fed could do is state to the world there is zero chance of QE3. The dollar would rally, commodities would be crushed, and Main Street would benefit. But that action might hurt Wall Street and since the country is run for the select few, I expect Fed policy to continue down the same road. We've had 2 middling quarters of growth during QE2, so as we all know.... if it doesn't work the first or second time, just keep repeating it. Surely the third (or fourth, fifth, nth) time will be the charm.