Quantitative Easing Plans Weighed with High Risks
Quantitativeeasing may begin soon.The U.S. Federal Reserve is facing a sluggish economy, limited options and potentially high risks, monetary policy analysts said.With its overnight lending rate set at zero to 0.25 percent Fed decision makers are contemplating a new round of bond purchases, a step known as quantitative easing or printing money, The Washington Post reported Monday.
The aim is to pump more money into a lackluster economy in which the unemployment rate remains stubbornly high.
The strategy is intended to make money cheap, which gives the inflation rate a chance to rise. With prices rising, consumers and corporations can be baited into spending, as bargains can be had by making a purchase quickly, rather than waiting.
Currently, inflation is hovering around 1.1 percent on an annual basis, which is below the Fed's target rate. New York Fed President William Dudley remarked in a speech in October that "the current situation is wholly unsatisfactory," meaning the Fed was failing its dual mandate of stimulating job creation and moderating prices.
Fed policy makers are to convene Tuesday and Wednesday to discuss whether or not to return to a policy of buying bonds and how much to purchase if they agree on that strategy.
The Fed risks sparking another asset bubble or inflation with no gain in the employment situation -- setbacks that would be rough on their own terms but which could also convince investors that "no one is in charge or that the people who are in charge can't get it right," said David Shulman, a senior economist at UCLA Anderson Forecast.