Federal Reserve Board Chairman Ben Bernanke said on October 15 that the Fed is ready to start its next round of quantitative easing, if needed. The new stimulus involves the purchase of long-term U.S. Treasuries and keeping interest rates low for longer than expected in the hopes of improving the grim economic outlook.
According to Bernanke, current inflation numbers are well below the Fed's objective of 2% -- i.e., deflation, not inflation, is the main concern. But while Bernanke believes that the Fed's intervention will stimulate the economy, reduce unemployment and prevent further deflation, Elliott Wave International's Senior Global Bonds Analyst Bill Fox believes that QE2 will do "nothing to alleviate this issue."
"Bernanke speaks at the Boston Fed’s conference, and we are all awaiting just how aggressive the language will be for further liquidity infusions via the printing press known as QE2. A policy which had limited success the first time... and somehow doing more of it this time around will cure the ills of the U.S. economic malaise?
"Bernanke fears deflation, but his response leaves one to wonder if he knows what deflation is. The purchase of Treasuries on a massive scale may allow the Federal Reserve to manage rates out in the belly of the curve at the margin, but deflation is about deleveraging of existing debt, and QE2 does nothing to alleviate this issue."
With the possibility of a post-election announcement November 3, most wait patiently to see if and when Bernanke and Co. decide to pull the trigger on this new stimulus.
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