John Williams, president of the Fed’s San Francisco bank, is the most recent Fed Board member to call for further easing of Fed policy. He joins Dennis Lockhart, head of the Fed’s Atlanta branch, who last called for more quantitative easing. Both men cited the dismal jobs outlook, and both are voting members of the Fed’s FOMC, which determines Fed policies.
In a Financial Times interview, Williams said “that unless ‘further action’ was taken there would be a lack of progress in boosting the job market. . .” Although he did not call for a specific Fed move, he used government doublespeak that left open any and all Fed action. The financial markets, however, are calling for QE3. Anything less will disappoint.
Richard Russell (Dow Theory Letters) has written that Bernanke does not want another QE program before the November elections because it would make the Fed appear “political.” Perhaps so. And, maybe Bernanke is concerned about appearing political, but he is more likely concerned about appearing to succumb to popular opinion, which universally is calling for – and expecting – QE3. This is result of the Establishment so successfully selling Keynesianism.
Establishment financial publications around the globe carry articles and commentaries that justify more quantitative easing. It is accepted as economic fact that all that is needed to boost economic activity is for the Fed to print more money. But, what to do now that the Fed and the world’s other central banks are four years into massive money creation, yet the economy remains stagnant? Since 2008, the monetary base in the US has risen from $800 billion to $2.7 trillion. What’s the solution? Print still more money? Nobel laureate Paul Krugman thinks so. In 2010, he called for the Fed to buy $8 trillion to $10 trillion in bonds.
Presently, there is much speculation as to when the Fed will announce its intentions. The next FOMC meeting is scheduled for July 31-August 1, with another in mid-September. Additionally, early August the Federal Reserve Bank of Kansas City will hold its annual Economic Symposium Conference in Jackson Hole. Because it is not an official FOMC meeting, if Bernanke uses the Symposium as a platform he will most likely only hint at his thoughts on more quantitative easing.
If QE3 is not announced at the July 31-August 1 meeting or strongly hinted at in Jackson Hole, there will be such a hue and cry that it will be difficult for the Fed not to announce in mid-September. Regardless of when the Fed announces more quantitative easing, it will appear to be bending to public opinion on monetary policy, not a development that makes the Fed appear to be the final answer on what monetary policy should be.