Tags: Fed | Easing | Economic | Doubts

CNBC: Fed Weighs More Easing Amid Economic Doubts

Friday, 13 January 2012 09:11 AM

More and more Federal Reserve officials are warming up to the notion that the economy needs a third round of quantitative easing, very loose monetary stimulus programs designed to pump up the economy when normal tools like interest-rate cuts aren't enough.

The Federal Reserve Open Market Committee will meet on Jan. 24-25, and if past comments serve as indicator, many officials are worried the economy is veering towards a slowdown and needs a fresh shot in the arm.

San Francisco Fed President John Williams has said unemployment rates will stay high, which "does make an argument that we should have more stimulus," according to CNBC. Meanwhile, Cleveland Fed President Sandra Pianalto has said in a recent speech that economic models indicate the Fed "should be even more accommodative than it is today."

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Under quantitative easing, the Federal Reserve steps in and buys assets from banks like Treasury bonds or mortgage-backed securities with freshly printed money.

The move is designed to stimulate the economy to avoid deflation and encourage hiring, although critics say it floods the system full of dollars and fuels inflationary pressures and messes with exchange rates and commodities prices.

New York Fed President Bill Dudley has also said fresh easing may be needed, and three inflation hawks who would normally oppose easing, Richard Fisher of Dallas, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia — are rotating off the committee that sets such policies.

Federal Reserve Bank of St. Louis President James Bullard has said the Fed should at least take a wait-and-see approach now that economic data is improving.

The Labor Department reported recently the economy added a net 200,000 nonfarm payrolls in December, well above prior expectations.

"Hopefully, we will keep this momentum going in 2012," Bullard told reporters recently after a speech in Chicago, according to Bloomberg.

"The tone of the data has been very strong" and the central bank "probably could wait and see for now."

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Friday, 13 January 2012 09:11 AM
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