This WSJ editorial reflects the views of my previous post regarding quantitative easing round II.
More monetary cowbell. The Wall Street Journal, Nov. 4.
This was my post from yesterday:
"This is a terribly risky strategy for what we expect will be little economic gain. The Fed hopes the policy will have the effect of reducing long-term interest rates by 25 to 50 basis points or more, but the 10-year Treasury bond is already near historic lows. Marginal business borrowers aren't worried about the price of money; they're worried about the vagaries of economic policy. QE2 only adds to this uncertainty, as the Fed expands its role into fiscal policy and credit allocation." italics added
I hope the Fed watches the effect of its policy very closely. Bond markets are complex, driven by many different forces. A $600 billion intervention is likely to cause significant distortion at a time when self-healing is needed. The folks at the Fed overshot a bit on this move.
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