The Fed has proposed a second (2nd) round of quantitative easing (QE) in efforts to forestall deflation. Will it work, and if so, at what cost?
Federal Reserve Chairman Ben Bernanke is pushing for another significant round of “quantitative easing” – now dubbed “QE2” by Fed observers – on the grounds that the economy’s response to simulative macro policies since 2008 has been anemic. What the economy needs, this thinking goes, is some inflation. While much of the public sees the run-up of growth in government and exploding deficits as keys concerns, Bernanke, continuing his soft stance on deficits, has argued that fiscal restraint would threaten the recovery. Instead, he argues that monetary policy still has arrows in its quiver that should be used to lower the unemployment rate and rejuvenate the economy while also preempting the dreaded prospect of deflation
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