Speaking in Boston tday, Bernanke lays down the cards. It is not only QE2, it's QE3, QE4, .., QEn, etc, as per post here a few weeks ago. The question is whether it will be $100B or $200B each month or more. Why gold drops on these news is bizarre (mst eb the verall negative tone of his remarks)
- Inflation is too low, may stay that way for some time. At current rates of inflation, short-term real interest rates are too high. (this is so funny)
- The risk of deflation is higher than is desirable.
- Notes that evidence suggests that asset buying is effective in aiding the economy. Warns that balance sheet expansion is a risk to inflation expectations.
- Fed needs to weigh the costs and benefits in deciding how aggressive to be with pace or size of any asset purchases.
- High level of unemployment is cyclical, not structural. (excuses us Mr. Bernanke, it the population not aging?). Unemployment will likely persist for some time. Prolonged high unemployment poses risks to a sustainable recovery.
- The economic recovery has slowed, growth will be fairly modest in the near term.
- QE2 would have undesirable impact on inflation expectations. (Excuse us?)