US Fed is split over fresh QE

Julian Harris
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A THIRD period of quantitative easing – dubbed QE3 – could be in the pipeline if the US economy continues to stagnate, the minutes of the last Federal Reserve monetary policy meeting revealed last night.

“Some participants” believed that “it would be appropriate to provide additional monetary policy accommodation” if the economy fails to pick up enough to erode America’s chronically high levels of unemployment, the minutes said.

However, a sharp divide on the committee would likely emerge under such circumstances, with “several participants” arguing that the US could have a smaller output gap than generally believed – meaning that existing asset purchases should be reversed “sooner than currently anticipated in financial markets.”

Fed officials are already split over the likely nature of rising US inflation, with dovish members insisting that price pressures are “temporary”, while some hawkish colleagues are more concerned about rising costs.

Chairman Ben Bernanke has kept insisting that price pressures are due to global effects, and not the fault of the Fed’s historically loose policy.

Outspoken Fed hawk Thomas Hoenig said recently that he was “not in the majority” in fearing inflation.