Daniel L. Thornton, of St Louis Fed who was a Qe2 sceptic to beginwith says it is unlikely to be any useful.
At its November meeting the Federal Open Market Committee (FOMC) decided to engage in a second round of quantitative easing called QE2 (i.e., quantitative easing in the form of large-scale purchases of U.S. Treasury securities) by purchasing an additional $600 billion in longer-term government securities by the end of the second quarter of 2011. In a recent Economic Synopses essay, I reviewed the transmission mechanism of monetary policy to evaluate the potential effectiveness of QE2.1 That analysis suggested several reasons why QE2 might have little or no effect on output, employment, and inflation or inflation expectations. This essay analyzes several potential dangers associated with the FOMC’s previous quantitative easing actions that will be exacerbated by the decision to expand its portfolio further.
He points to following dangers:
- Inflation could rise above Fed preferred target of 2%.
- Banks likely to keep holding reserves
- Balance sheet reversal likely to be difficult