Atlanta Fed's Lockhart and Boston Fed's Rosengren defend QE2

I am very skeptical at the justification for QE2.  The Federal Reserve is taking heat from many mainstream economists (Jefferey Miron), international leaders (China and Brazil) and conservative politicians (Ron Paul).

Atlanta Federal Reserve president Dennis Lockhart was at the Alabama World Affairs Council where he gave a defense of QE2.  Via Bloomberg:
“The current policy is resolutely designed to support the expansion of the economy and to maintain inflation near the FOMC’s desired objective for price stability, I have every confidence the policy will revert to reducing the size of the Fed’s holdings as those conditions are met,”

Lockhart said the program is not intended to weaken the dollar or monetize the debt. He said the effect of the policy would be “measured.”

“I don’t have outsized expectations. I see it as a precaution aimed at reducing or eliminating downsides.  Also, it should reinforce, and accelerate somewhat, the growth momentum that is currently evident and, in my opinion, counter to some extent the strong headwinds the economy is facing.”

“The economy is better positioned to definitively avoid the danger zone,”

Federal Reserve Bank of Boston President Eric Rosengren gave another defense of QE2 at Providence, Rhode Island.  Via Bloomberg:
“Not changing policy risked further disinflation, a rise in the real cost of funds tantamount to monetary tightening, and risks of continued and possibly worsening pain in labor markets,” Rosengren said today in a speech in Providence, Rhode Island. “There are real and significant long-term costs to individuals and the economy when the unemployment rate remains stubbornly high.”

“Instead of relying on the indirect effects of targeting a lower funds rate, we are opting to more directly affect the interest rates that have the greatest connection to real spending; by buying Treasury bonds and creating additional bank reserves,” Rosengren said. “Like conventional policy, one would expect that mortgage and corporate rates will fall, and exchange rates will be impacted, providing additional stimulus to the economy.”
“The textbooks might say fiscal policy would be the more appropriate tool,” Rosengren said. “An ideal package would be more fiscal stimulus in the short-run balanced with” addressing unsustainable longer-term programs, he said.

“Everybody would agree in the long run we have to have a more sustainable fiscal policy". 

Harvard's Miron says Fed is "pushing on a string"


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