In today’s Wall Street Journal, Jon Hilsenrath and Kristina Peterson report, “The Federal Reserve is heading toward launching a new round of stimulus to buck up the weak economy, but stopped short of doing so right away.” The predicted means of stimulating the economy is another round of the unconventional policy of quantitative easing (QE), i.e. when a central bank purchases financial assets from the private sector with newly created money in effort to spark economic growth. Thus, the quantity of US dollars would be increased, debasing their value and causing inflation.
The authors note that this strategy has received significant criticism:
Critics say there is little more the Fed can do to help, having already pushed short-term interest rates to near zero. They contend its unconventional actions could do more damage by sparking inflation, and that in the meantime the Fed is punishing savers who are getting little return on their bond investments. (more…)