Tags: Fed | easing | QE3 | recession

Former Fed Officials: Start QE3 Right Now to Halt Recession

Thursday, 04 Aug 2011 08:32 AM

The Federal Reserve should roll out a third round of quantitative easing now and pump the economy full of money or risk watching the country fall back into recession, former officials at the central bank say.

Past quantitative easing measures have directed the Federal Reserve to buy assets like Treasurys held by banks, thus injecting money in those banks to spur investing and ultimately, economic growth.

Donald Kohn, Vincent Reinhart and Brian Madigan — who served as directors of the Fed's monetary affairs division — tell the Wall Street Journal that some sort of new easing is needed to counter renewed slowing in the economy.

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Fed Chair Ben Bernanke
(Getty Images photo)
All three say a new asset-purchase program wouldn't represent a cure-all, "but in those circumstances, I think it's up to the central bank to do what it can to help around the edges," says Kohn, now at the Brookings Institution, a liberal-leaning Washington think tank, the Journal reports.

The Federal Reserve and Chairman Ben Bernanke will likely keep interest rates near zero through mid 2012 and beyond.

"We're flying the plane slower and closer to the ground, so we're less resilient to adverse shocks," says Reinhart, who puts the odds of a new recession at 40 percent, the Journal adds.

While many analysts had been expecting the second half of 2011 to see stronger economic activity earlier this year today, fears are growing that another recession looms.

Martin Feldstein, a top economic adviser to both President Ronald Reagan and President George W. Bush, tells Bloomberg that he believes the country now faces a 50 percent chance of a new recession.

"This economy is really balanced on the edge," Feldstein says. "Nothing has given us much growth."

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The Federal Reserve should roll out a third round of quantitative easing now and pump the economy full of money or risk watching the country fall back into recession, former officials at the central bank say. Past quantitative easing measures have directed the Federal...
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