The Federal Reserve Considers more Quantitative Easing

For the past week, rumors have been spreading across financial markets that the Federal Reserve might consider more quantitative easing in reaction to the slow economic recovery.

Quantitative easing in an economic policy process used by the central bank of a nation to stimulate an economy when interest rates are near zero percent. The bank first credits their assets with the creation of new money. With the new money the bank buys assets of large financial banks in an effort to increase the bank’s lending activities to stimulate economic growth.

The question is if the Federal Reserve will announce new quantitative easing measures Tuesday morning on the heels of a bad July unemployment report last week.

Some markets participants feel that more quantitative easing is necessary to fill the gap that the stimulus spending had on the economy earlier in the year. However, it might be unwise for the Federal Reserve to try and stimulate a growing economy even if the growth is relatively slow. Using quantitative easing would take a risk that some policy members might want to save if the GDP falls into negative territory in future. In addition, printing new money would give conservatives more political ammunition as election campaigns reach the high point this fall.

Trying to decide wither or not Ben Bernanke will announce new easing is pure speculation yet it does indicate that the Federal Reserve has been considering additional help for the economy. The uncertainly emitting from Ben Bernanke could mean that the economic growth everyone has been expecting will not materialize unless Washington takes action once again.

Sources:

Forbes’s Investopedia.com

Wall Street Journal “Investors Wait on Fed” Kristina Peterson and Donna Kardos Yesalavich,