Here Comes the Fed Again: More Monetary Stimulus Is Likely
Next Wednesday, after a two-day policy meeting, the central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, The Wall Street Journal reports. The Fed aims to drive up the prices of long-term bonds, which in turn would push down long-term interest rates. Those lower rates, the central bank hopes, will encourage more investment and spending -- and liven up the sleepy recovery.
But while Fed Chairman Ben Bernanke is pushing for another round of this form of monetary stimulus, known as quantitative easing, some of his colleagues are skeptical. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said on Oct. 25 that more expansive monetary policy was a "bargain with the devil." Three other presidents of regional Fed banks have also expressed doubts about the plan, but it's not likely they'll influence the policy decision much.
Some opponents argue that the economy is going through long-term changes that the central bank can't rush, the Journal writes, and they worry that the move could stoke future inflation or inflate a new asset bubble. However, with unemployment so high and inflation so low -- below the Fed's informal objective of about 2% and with the potential of becoming outright deflation -- the Fed is bound to move in the manner nearly everyone now expects.