The Fed’s Quantitative Easing and the Economy

Quantitative easing is a largely experimental tool employed by the Federal Reserve to address a continuing sluggish economy and the renewed potential of deflation. That the Fed faces this prospect is final proof positive that President Barack Obama's Keynesian stimulus policies have failed, leaving monetary policy as the sole remaining major stimulus tool. The risks associated with quantitative easing are substantial, including that it will fail, or will trigger a resurgence of inflation with or without a pickup in output growth. Even if successful, the Fed will need to act decisively down the road, reversing course by pushing up short-term and long-term interest rates to prevent a bout of new asset price bubbles and inflation. These future actions could produce another recession in the face of still-high unemployment. Navigating these waters successfully will require extraordinary skill and luck. The President and Congress could greatly improve the Fed's prospects for success by vowing not to raise taxes and instead reducing federal budget deficits by substantially reducing spending.

http://www.heritage.org/Research/Reports/2010/10/The-Feds-QE2-and-the-Economy-Sailing-to-Safety-or-a-Ship-of-Fools

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