Federal Reserve says no to more quantitative easing

Fears of inflation make for timid monetary policy.

By Alex Hern Published 04 April 2012

Stocks in Tokyo drop on the news that there will be no QE. Credit: Getty

The Bank of England monetary policy committee is meeting today, to decide two things: whether to raise the interest rate, and whether to continue with quantitative easing (QE) at the current level. Of those, the one everyone cares about is the interest rate, which has been at a record low for a record period of time now – over three years.

The bank is unlikely to make such a change now. Despite low inflation, real interest rates are still negative in many areas, and with stagnation the best-case scenario for the next quarter, the MPC is likely to play it safe.

While we wait, we can pore over the decision of the United States' Federal Reserve Open Market Committee, which just released the minutes of its March meeting. The meeting wasn't to discuss interest rates (for that we have to wait until later this month), but was instead focused on whether or not to perform another round of QE, which involves the central bank buying back its own assets.

Although the topic is rather off the agenda in the UK (even though we started a third round of QE last year, in what was an embarrasing volte-face for the chancellor, who had previously called such a move "the last resort of a desperate government"), in the US it is a big deal. Markets had been expecting a resumption in activity after a speech given by Fed chairman Ben Bernanke last week, in which he expressed doubts that the rapid pace of job creation was sustainable. In addition, in their last statement on the matter, in January, the committee had suggested it would resume QE "before long".

The reason for the change in policy was a belief that the potential for growth in the economy had declined. Without this slack capacity, asset purchases are much more likely to lead to spurts in inflation.

This much is agreed on. However, there is a dispute even within the committee as to the potential harm that such extra inflation could lead to. QE is often seen as a trade-off between inflation and unemployment, increasing the former and reducing the latter; in a scenario where inflation is below even the official target of 2 per cent, and unemployment is way too high (although declining), this trade-off was thought by many to be the obvious choice.

The committee's minutes reveal:

A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.

Even that is hedging it slightly. As the Cleaveland Federal Reserve reported last month, the market is currently pricing in an inflation expectation of under 2 per cent for the next thirty years. While the market may be wrong, as Matt Yglesias argues, it seems pertinent for the Fed to at least explain why they think it is.

The real reason for this caginess is that federal bankers seem to do anything to avoid being portrayed as an inflation dove. Inflation can be harmful indeed, but right now the misery in the States is coming from unemployment. The failure of the Fed to tackle it is becoming more obvious every month.

View the discussion thread.

4 comments

Tue, 2012-07-10 09:32 — Jimmy Choo Outlet (not verified)

The study found that women who took Jimmy Choo Outlet the drugs and did not get pregnant had a slightly lower risk Jimmy Choo Sandals of developing breast cancer before age 50. Those who took the drugs and reported a pregnancy lasting 10 weeks or more had a slightly increased risk, but that risk was Jimmy Choo Pumps little different than the risk of women who never took fertility drugs at all.

Tue, 2012-07-10 09:31 — Sac Chanel (not verified)

That's a tall order. But Sac Chanel studies over the last two years have shown what Sac à main Fauci calls "striking, sometimes breathtaking, results," in preventing people Sac Chanel pas cher at high risk of HIV from getting it in some of the hardest-hit countries, using this treatment-as-prevention method.

Thu, 2012-04-05 04:52 — Nike Shox R4 Femmes (not verified)

Nike Requin Pas Cher For the enjoyment and even striking style around baseball boots and shoes, an example may be amongst the most common [url=http://www.tnnikerequin.eu]Chaussure Nike TN[/url] Mercurial Heavy steam, Which often D Lo spokesprion. All this cutting edge Chaussure Nike TN Vapor, the fourth inside the Exclusive range, has-been Pre-loaded with the first thing at heart: organic swiftness. Brand new solutions features includa Fibre-composite lone in addition to copyrighted Vapor Tissue traction expansion Procedure has aussi That Improved footing and comfort -- no matter whether around organization or maybe fluffy flooring only real toy plates. Intent Does not quit the particular technological innovation generally there. Put TPU calcaneus cover time utilizing [url=http://www.tnnikerequin.eu]Bottes Timberland Pas Cher [/url] introduce together with a wide high heel coffee pods offer record special muscle together with coverage in to the leg. Automobile some Moulded Electronic.Versus.A fabulous. May Nike Shox R4 Femmes bed sheets affect located at broadband internet. This is the fantastic layout to your sportsman What individuals plays there staff, dissertation keep Will probably Color-Coordinated all of which will demonstrate your love along with your [url=http://www.tnnikerequin.eu]Nike TN Requin[/url]crew in group.

For the superb pair of skateboarding boots and shoes, pick-up Nike TN SB shoe, Which can be Devised for [url=http://www.tnnikerequin.eu]Nike Requin Pas Cher[/url]. These sneakers are formulated utilizing Avoi midsole time for strong, heavy duty underlay. Considering the conventional plastic [url=http://www.tnnikerequin.eu]Nike TN [/url] so that you can hold ones own foot and also couch a operate, your relaxation is undoubtedly initial concern because of this layout. The truly great enchantment related to Their particular thesis is certainly Nike Air Max 2009 boots and shoes highway lure. These Cdn match everyone [url=http://www.tnnikerequin.eu/products/Nike-Air-Max-BW-Homme-s584_p1.html] Nike Air Max BW Homme [/url]wherever, not just for skateboarding. You can put on with the favorite bluejeans dissertation on a yr each day search fascinating Which Will Have got persons appreciating any good fashion sense. Using a chosen satin and [url=http://www.tnnikerequin.eu/products/Nike-Air-Max-Tn-Femmes-s456_p1.html] Nike Air Max Tn Femmes [/url]sleek full-grain household leather out there, You Will Have Easy producing your own personal dissertation shoes.

In the Nike Requin Pas Cher in the spouse and children, purchase your boot Speedsweep. These footwear are equipped for uncertain exercises and title is done. This able nylon uppers as well as divided up suede Nike Air Max 2012 Homme gives you convenience of motion and durability with out sacrificing your coziness. Maintaining a trendy is critical towards [url=http://www.tnnikerequin.eu/products/Nike-Air-Max-2012-Homme-s593_p1.html] Nike Air Max 2012 Homme [/url]gaining a game. Using breathable equipment Nike TN Requin Enclosed from this develop, ones come to feel will stay waterless and funky since you outwit your assailant without any difficulty. The actual nicotine gum plastic outsoles provide you with [url=http://www.tnnikerequin.eu/products/Nike-Air-Max-2009-s537_p1.html] Nike Air Max 2009 [/url]affirmation regarding thesis boots difficult traction, and that means you cannot fall and provides the other person the upper personally. Nike Air Max Tn Femmes

Pastime and a noble to make sure you playing golf, you recognize the good incredible importance of boots or shoes, thus you-can maintain mind to the nationality not to mention off of you a. Your Nike Air flow Skyrocket Sauna trainer is a great Bottes Timberland Pas Cher decision That features a one-piece micro-fiber second That May Be compact, capable, and form-fitting. The particular Watershield A lot more Assists in keeping standard water outside as you move foot or so dry and cool Visits. Having a [url=http://www.tnnikerequin.eu/products/Nike-Shox-R4-Femmes-s460_p1.html] Nike Shox R4 Femmes [/url], light-weight structure structure, dissertation boots or shoes tend to be computer understanding. All of these shoes' give open support with the help of Can Constancy therefore you-can do better than your mates and take up hard game but. Nike Air Max BW Homme