Many economists surveyed by CNBC believe the Fed will start quantitative easing again later this year. The expected amount of QE is around another half a trillion dollars at or around the time unemployment rises again. It is also expected that unemployment will rise again to around 10.0%. Dissent within the Fed on further QE has many concerned that the Fed is not being clear about their goals and plans. The fear of deflation is almost as high as the fear of runaway inflation. You might take a quick look at the monetary aggregates to get a better picture of what has happened since the Fed stopped QE1 back in March 2010.
Quantitative easing first took the form of the Fed buying long-term Fannie and Freddie debt that was of high quality. As some of this debt expires, the Fed is now planning on rolling the debt over into U.S. Treasuries, which is really a substantial difference from holding debt that is “implicitly” backed by the government like Fannie or Freddie debt. Some believe however that the news of rising unemployment (which is expected this week) will lead to a bleaker outlook for QE2. A good jobs report might dim the prospect of further easing by the Fed, which could weaken any positive effect to be gained from a good jobs report. Quantitative easing in any sense is a new policy for the Federal Reserve, and some central bankers believe that the use of QE at all is undermining the Fed’s ability to manage inflation. However, the effect of QE might already be priced into the yield curve, meaning that further QE is expected. Seeking Alpha is a popular blog that has predicted some outcomes of QE2.
Questions you might answer:
- Do you believe that the Fed should continue pursuing a policy of Quantitative Easing? Do you believe QE2 should follow the form that is described in these articles?
- Do you believe there is more danger in action or inaction by the Fed with regard to deflation?
- Do you believe that inflation or deflation is a bigger concern?
- Is there anything that concerns you about the yield curve or the monetary aggregates in general.
Please don’t try to answer all these questions, and if you would like to discuss something else related to QE2 and the articles given here, please feel free.