Could QE2 Spawn 70s Style Stagflation?
Posted by William Byrnes on April 13, 2011
The Federal Reserve may consider downsizing its original plan to purchase $600 billion in Treasury bonds over fear that inflation could be driven to dangerous levels by the revitalized economy. Quantitative easing—the purchase of Treasuries by the central bank—is intended to raise the price of Treasuries, which should lower long-term interest rates and provide banks with cash to lend to their customers. The expectation is that lower long-term rates will encourage home refis and boost corporate investments and expansion, which, it is hoped, will created new jobs. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).
For previous coverage of quantitative easing in Advisor’s Journal, see Fed to Purchase $600 Billion in Treasuries in Move to Stimulate Economy (CC 10-94).