Fed Considers QE3?


According to The Washington Post, officials at the Federal Reserve have suggested that it may soon be time to pursue additional monetary stimulus through a third round of quantitative easing. 

At a June 21-22 meeting, some leaders of the central bank argued that if there were no progress reducing unemployment, the Fed should consider further expanding the money supply — which in practice would mean a third round of "quantitative easing," or buying hundreds of billions of dollars in Treasury bonds.

"Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate," and if inflation pressures dissipated, "it would be appropriate to provide additional monetary policy accommodation," said minutes from the Federal Open Market Committee meeting released Tuesday afternoon.

That was the most clear acknowledgment to date that at least some Fed policymakers are discussing such a possibility. If anything, the latest economic data — particularly a very weak report on job creation in June that came out last Friday — would tend to make the Fed more open-minded about new steps to bolster growth.

The last round of quantitative easing was an unprecedented experiment that the Federal Reserve took on despite limited potential upsides. In April, a report in The New York Times looked at expert opinion on the success of the program and found that the benefits were "surprisingly small." So it wasn't the disaster that some critics warned of, but it was hardly a resounding success either. Given the risk and the likely backlash, as well as the potential for politicization, it's not clear why the Fed would pursue yet another round of a policy that so far has not done much good.