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02 November 2010

Il Sole: Bernanke’s future policies between Fed's falcons and doves


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On November 3, the Federal Open Market Committee (FOMC) will meet and decide on the course of future monetary policy, in order to try to support the American economy.



The markets expect an injection of liquidity into the system in the amount of at least 500 billion dollars. It is possible, though, that the intervention can reach 1 500 billion dollars. In any case, it would be the second operation of “quantitative easing,” after the one in 2008/2009 which amounted to 1 725 billion USD.  

Several members, so-called „falcons“ of the FOMC, are opposed to the strategy of quantitative easing. Thomas Hoenig, president of Fed in Kansas City, speaks about this strategy as of a „pact with the devil. The Fed is risking a strong rise in inflation balanced by slight decrease – between 25 and 30 base points – in long-term interest rates.“  

On the other hand, the „doves“ of the FOMC led by Charles Evans, president of Fed in Chicago, claim that even 1 500 billion of new liquidity on the market will not be sufficient for American economy. The „super quantitative easing“ would require at least 5 000 billion USD to restart the economy.  
 
 


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