U.S. News: Opinions Are Split on Fed Policy Move
The Federal Reserve's move to print money to begin a new round of bond-buying, expected to be announced Wednesday, is aimed at lowering long-term interest rates to give the economy a lift. But inside and outside the Fed, there is an unusual divergence of opinions on how much good it will do -- if any.</br></br>Proponents say buying hundreds of billions of dollars more in Treasury bonds will provide only modest support for the economy.</br></br>Foes warn that it could backfire by pushing up commodity prices, sowing seeds of unwelcome inflation in the future, or by undermining confidence in the Fed's ability to manage -- and eventually reduce -- its holdings.</br></br>Opponents stretch across the ideological spectrum, from John Taylor, a Stanford University economist and former Bush Treasury official, to Joseph Stiglitz, the Columbia University Nobel laureate and former Clinton White House official. Mr. Taylor has said the effort, known as quantitative easing, or QE, won't work, and that the government instead should avoid raising taxes and stop imposing new regulations. Mr. Stiglitz has said QE won't work and that the economy needs a big dose of spending increases and tax cuts.</br></br>Economists don't even agree on what another round of QE would do. Bank of America Merrill Lynch expects it should help push the 10-year Treasury yield to around 2% late this year from 2.63% today. Mizuho Securities says the effect of any new asset purchases "will be limited."