Ponnuru: Questions about the Fed’s QE answered
The Federal Reserve has announced a third round of quantitative easing, a set of asset purchases designed to increase the money supply. It said it would keep easing until job growth accelerates, and continue a “highly accommodative” monetary policy “for a considerable time after the economic recovery strengthens.”
Stocks jumped on the news, but conservatives gave it a much more hostile reception. For those trying to make up their minds, here are a few questions one often hears about what the Fed is doing, along with my answers:
1) What’s the rationale for QE3? One argument for it starts with the two goals that Congress has set for the Fed – to keep unemployment low and prices stable. The Fed defines stable prices as a steady 2 percent inflation rate. Core inflation, headline inflation and market expectations of inflation are all below 2 percent. Right now unemployment is high. Looser Fed policy would bring us closer to both targets.
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