It is interesting that articles in the business press have shifted from the opinion that the Fed is out of policy options for stimulating growth to a stance that quantitative easing is safety net that will get things moving forward again.
I find it amazing that anyone would equate quantitative easing on the same basis as cutting interest rates.
The following quote highlights my point:
"Dudley said that $500 billion of purchases, for example, would add as much stimulus as reducing the Fed’s benchmark rate 0.5 percentage point to 0.75 percentage point, depending on how long investors expect the Fed to hold the assets. Officials can’t lower the rate further because it’s already close to zero."
Lanman, Scott, Wellisz, Christopher, 2010. Fed debates easing tools as dudley says further steps warranted. Bloomberg News, Oct. 2.
While it is true that lowering interest rates will indirectly devalue a currency relative to other currencies where higher interest rates are paid, I consider rate cuts and quantitative easing as two separate things.
The fact that the Fed has to resort to quantitative easing as the last means of stimulating growth is a good indication that US economy remains weak.
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