By Steven K. Beckner
BOSTON (MNI) – Federal Reserve Chairman Ben Bernanke spoke very
cautiously about the possibility of additional quantitative easing
Friday with less than three weeks to go before Fed policymakers meet to
decide whether to resume large-scale bond purchases.
Bernanke, speaking to a Boston Federal Reserve Bank conference,
reiterated the Federal Open Market Committee’s September commitment to
provide “additional accommodation if needed” to meet the Fed’s dual
mandate, but said the FOMC must weigh the “costs” and “risks” of
“nonconventional” monetary stimulus.
He said high unemployment and low inflation suggest “a case for
further action,” but said those costs and risks “have dictated that the
FOMC proceed with some caution” in deciding whether to go ahead with
renewed quantitative easing or “QE2″ as it has come to be popularly
known.
In deciding whether to inject more monetary stimulus, Bernanke
said the Fed will have to “take account of the potential costs and risks
of nonconventional policies.” And he said any Fed action will be
“contingent” on incoming data.
Among the things the FOMC will have to consider when it meets Nov.
2-3, is the lack of experience the Fed has in judging the effects of
bond purchases and the danger that they could undermine confidence in
the Fed’s ability to “exit” from its easy policies, causing an
“undesired increase” in inflation expectations.
Short of QE2, Bernanke said the Fed could first resort to a change
in communications to signal to the markets that the federal funds rate
will be kept “low for longer than markets expect.”
-more-
** Market News International **
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