Currently, there is speculation with regard to whether or not the quantitative easing or QE2, the Federal Reserve Bank’s next round of stimulus and decision to resume purchases of government securities, will help re-start the U.S. Economy. Several arguments for and against another round of quantitative easing ranging from what the U.S. needs to complete economic disaster. According to the International Monetary Fund (IMF) in a report entitled World Economic Outlook of October 2010:
Monetary policy should remain accommodative because of muted inflation, subpar growth, and lingering financial strain. The Fed has maintained the policy rate at a record low while signaling that conditions are likely to warrant keeping the rate at exceptionally low levels for an extended period. In light of larger downside risks, the Fed’s recent decision to resume its purchases of government securities (using resources from maturing government-sponsored-enterprise debt and mortgage-backed securities in its portfolio) is appropriate. In the event that such risks materialize, policy responses could include a strengthened commitment to maintaining the ultra-low policy rate for an extended period, expanding asset purchases, and relaunching facilities to aid stressed markets. Meanwhile, the Fed has been developing a well-diversified toolkit for managing monetary conditions, which will help facilitate monetary exit when needed.
Although the uncertainty is somewhat frightening for most Americans, there are plenty of arguments against fiscal austerity before the U.S. is clearly on a sign of recovering from the recession, the main being that it could derail any hope for recovery by contracting GDP and raising unemployment. And coupled with what many economists argue along with the IMF position in support of quantitative easing, it is apparent with the stagnant economy and high level unemployment that stimulus is badly needed. For the fiscal austerity movement, once the economy improves sometime in 2011, we can immediately begin austerity measures to bring the national debt under control, but only upon clear signal that the U.S. economy is recovered.