Whether you like it or not, the world’s monetary authorities are a significant factor and force in the global economy — especially the US Federal Reserve (Fed).On September 13, the Fed announced a third round of Quantitative Easing (QE), a non-traditional monetary policy tool used by central banks in order to stimulate an economy when conventional monetary policy has become limited, through purchasing financial assets from commercial banks and private institutions.At the Bermuda Business presentation on Tuesday night, Charles Ludolph from Transnational Analytics went so far as to suggest that one of the most important things for Bermuda to consider is how it can benefit or avail itself to the Federal Reserve’s accommodative monetary policy.Being somewhat of a curious fellow I thought I’d ponder briefly the ramifications easy money might have on Bermuda.Let’s start with the negatives.1. Risks of Importing InflationOne negative side-effect of easy monetary policy is the potential for inflation. Rising prices effectively can develop as a consequence of a weakening dollar.Since Bermuda’s currency is pegged to the US dollar a weakening greenback actually lowers the nation’s purchasing power and can have the rather undesirable effect of making things we buy abroad more expensive.According to Government Statistics, roughly 30 percent of the Island’s imports are not from the US so, imports from the UK or Canada, for example, can become increasingly more expensive as the dollar weakens visa-vie theses currencies.Since many central banks around the world are easing at the same time, however, the impact on currency movements may be less obvious.Many economists argue that QE also helps foster commodity inflation that results from speculative asset purchases.As a result we are unlikely to see relief from soaring diesel fuel purchases and power bill costs.2. Crimping Profits in the Financial SectorsLow interest rates affect the profitability of banks and insurers which make up a large portion of the Bermuda’s economy.For the property and casualty re/insurance industry, low interest rates put pressure on earnings as investment income declines on new money yields.With new money yields on shorter term debt earning little more than 1.4 percent in aggregate, there appears to be little scope for larger gains in investment income.This is important, because according to a study conducted by Keith Walsh at Citigroup, net interest income has generated all of the industry’s earnings from 1975 to 2010.The banking sector is also negatively affected as higher rates can lead to higher absolute levels of income and help establish fees on products such as money market funds.For example, currently many money market funds are generating fees much lower than in the past to ensure returns to unit holders remain marginally positive.3. Punishing SaversThis is not unique to Bermuda but is universal in scope. The Fed’s move to pump money into the economy probably helps those with excess wealth to invest in assets like equities, commodities and real estate, but punishes the more the conservative savers and those individuals who largely do not have access to the financial markets.The average rate on a one year CD is 0.3 percent, savings accounts yield only 0.1 percent and money market accounts garner a pathetic 0.12 percent.This means savers are losing money every year after one factors in the rate of inflation. It actually doesn’t pay to save! The scary thing, if you believe the Fed, is this will continue until 2015.With anaemic or negative after-inflation returns, it is becoming increasingly difficult to save up for various big ticket items.One of the consequences of this is the tendency for conservative short-term savers to become investors or even worse, speculators.This can lead to pockets of asset inflation (discussed above). Consumption also can suffer because one needs to save more and consume even less when rates of return are lower just to get to the same absolute level of savings required.There is, however, a potential positive:4. Financial asset price inflationOne of the side-effects of easy money is the growth in excess liquidity. If you think of money as water and Fed as the tap, more and more water pouring forth has to find a home.It can stay in reserves at central banks and commercial banks, essentially doing nothing, or it can slosh over into assets.If it flows into asset classes the sheer volume could have a tendency to lift prices.One perfect example of this is the disproportionate effect the Fed is having on the bond market.Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance. This huge buying effort is likely helping to keep US government bonds and mortgage-backed securities well bid and thus supporting or even escalating prices.Rising asset prices in financial assets leads to what is called the wealth effect — when people see their portfolios expand in value they feel wealthier and have a higher propensity to spend money or save less.As a result aggregate demand and consumption increases help lift the economy. One major detriment of this theory, however, is that this disproportionately helps the wealthier classes which tend to have more accumulated financial assets.I don’t have any data on the composition of assets held by Bermudian households but I have a feeling that the general populace is weighted more heavily towards real estate than financial assets so there is likely less of a wealth effect here on island but there should be the potential for some marginal benefit.It’s worth stating the obvious as well: US housing is a huge beneficiary of QE and low interest rates, while Bermuda real estate is not.The banking system here does not directly key off US rates for a number of factors and thus it would be irrational to assume mortgage rates in Bermuda should resemble those in the US.Although QE and cheap money should ease the economic pain felt in the US, it is unlikely to offer large benefits to Bermuda.In my opinion, it is actually exasperating some underlying issues here and offering no net tangible benefit of significance.Nathan Kowlaski is the chief financial officer of Anchor Investment Management.