Anthony Mirhaydari writes at MSN Money that the Fed is risking more inflation with talk of QE3:
We’ve got problems. A number of structural issues — from Europe’s woes to the federal debt problem to stagnant job growth and still-falling home prices — will likely push the American economy dangerously close to a new recession in 2012.
Much of Europe and Asia are already there. Indeed, a coalition of Europe’s major economic institutions said Wednesday that the eurozone is already in a recession.
It’s probably not surprising, then, given the activist nature of our central bank, that the Federal Reserve — which is already in the midst of Operation Twist to pull down long-term interest rates and has committed to holding short-term rates near zero through 2013 — is starting to fidget. A chorus of officials have hit the speaking circuit over the past week, talking up the potential for more policy easing.
In simple terms: The Fed is laying the groundwork for another round of unmitigated money printing, also known as quantitative easing — or QE3, as it would be the third iteration of the strategy. If carried out, it would not only be a political blunder in an election year but it would do further damage to the economy.
The Investors Business Daily editorial board isn’t happy about it, either:
The media have busied themselves with touting the big economic rebound they see brewing in the U.S. We hope they’re right. But if they are, why is the Federal Reserve getting ready to print even more money?
The media argument goes like this: After years of struggling, the economy is finally churning out jobs. Last month alone there were 200,000 new ones, with unemployment falling to 8.5% â€” its lowest since Obama entered office.
This comes as a variety of U.S. economic sectors begin to show signs of life. And as they report this, the mainstream media can barely conceal their glee at the idea that Republican candidates might have to run against President Obama during an economic boom.
Boom? Well, the Fed doesn’t see it that way.
Alarmed at the economy’s slow pace, the ongoing slump in housing and the threat of European debt defaults, the central bank is preparing a third round of “quantitative easing” â€” the monetary equivalent of a defibrillator paddle placed on the economy’s chest.
This is rather strange, given that the previous two attempts â€” QE1 and QE2â€” did little to help the economy. Indeed, those efforts may have so distorted markets and interest rates that they held back the recovery.
When are they ever going to learn?