Federal Reserve Chairman Ben Bernanke needs a fresh monetary blitz to avoid deflation but is struggling to overcome resistance to further stimulus from regional Fed hawks, says Ambrose Evans-Pritchard, international business editor of London’s Daily Telegraph.
“The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts,” Evans-Pritchard writes.
“Fed watchers say Mr. Bernanke and his close allies at the Board in Washington are worried by signs that the U.S. recovery is running out of steam,” Evans-Pritchard says.
Key members of the Federal Reserve board are considering a new round of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion to $5 trillion, he says.
Former Fed official Chris Whalen, now head of Institutional Risk Analytics, tells Evans-Pritchard the U.S. is headed for a double-dip recession.
"The party is over from fiscal support,” Whalen says. “These hard-money men are fighting the last war: they don't recognize that money velocity has slowed and we are going into deflation.”
“The only default option left is to crank up the printing presses again."
Analysts tend to discount suggestions that the Fed could signal renewed quantitative easing in response to signs of disinflation.
"To me, if they do that, that will be a large surprise and that would generate U.S. dollar weakness, Camilla Sutton, currency strategist at Scotia Capital, told the Wall Street Journal.
“But I think that's on the outer edges of the risks.”
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