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Ben Bernanke: QE3 is an option,"Stealth QE3" Comes to Fruition – Soaring Inflation is Next

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06/23/2011 07:21 AM
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Ben Bernanke: QE3 is an option,"Stealth QE3" Comes to Fruition – Soaring Inflation is Next
[link to www.industryleadersmagazine.com]

Federal Reserve Chairman Ben Bernanke indicated yesterday that a third round of easing is an option if economic conditions worsen further, after a meeting in Washington with U.S central bankers, while policy makers agreed to complete $600 billion in bond- buying as scheduled this month in the second round of quantitative easing.

Voicing hopes that the U.S economy would soon recover from the manufacturing set-backs caused by the Japan earthquake, Bernanke also said, “We don’t have a precise read on why this slower pace of growth is persisting… some of these headwinds may be stronger and more persistent than we thought.”

[link to moneymorning.com]

Money Morning Chief Investment Strategist Keith Fitz-Gerald saw this "stealth mode" QE3 coming.

"Instead of printing more money, the Fed is likely to start reinvesting the proceeds of maturing debt," Fitz-Gerald said. "Ultimately, that won't reduce our government's bloated, toxic balance sheet. But it will change the makeup of that balance sheet - and not for the better."

By keeping interest rates at historic lows and continuing to reinvest in maturing debt, rather than retiring it, the U.S. Federal Reserve runs the risk of feeding an inflation rate that in recent months has risen to uncomfortable levels.

But that's something Bernanke has sought to acknowledge without taking responsibility.

"Inflation has moved up recently, but the [Fed] anticipates that inflation will subside... as the effects of past energy and other commodity price increases dissipate," the FOMC said in its statement.