“QE2” is what experts are calling the latest round of “quantitative easing” being engaged by the Fed. The announcement made today after two days of talks includes an estimated $600 billion in purchases of Treasury bonds. The deeper story here though is the clear and distinctive rift between the chairs of the regional Fed banks.
In their defense (albeit weak though it is) the central private bank is really without much ammo at their disposal to fight this battle currently. Their move to lower the interest rate to 0.025% a couple of years ago has not resulted in the stability and speed of recovery that it was predicted to accomplish, and now that weapon is no longer available. In the first round of “quantitative easing” the Fed purchased $1.75 billion in US government bonds. This move, in some circles, is considered the reason the US economy has been strengthening. However, in light of the assessment that some recovery is taking place, there are a number of Fed heads that are concerned that the current “QE2” is not the correct move. And these players are not keeping it to themselves. In fact, a majority of those who will be taking the reins at regional Fed banks as presidents next year have already expressed doubts about the current plan.
With the power shift that is taking place on Capitol Hill after this mid-term election, Ben Bernanke, who is no stranger to heat from our elected employees, will have more congressional members to answer to in a whole new round of interrogations. Who knows what ammunition they will find at their disposal now that a growing number of the members of the Fed rank and file are openly questioning the current strategy.