Fed: may need 3rd stimulus | business | Hindustan Times
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Fed: may need 3rd stimulus

business Updated: Dec 07, 2010 21:54 IST

America may need a third dose of quantitative easing (QE) to avoid its economy slumping back into recession, Ben Bernanke predicted.

The chairman of the Federal Reserve defended his decision to launch a second $600 billion stimulus programme — dubbed QE2 — last month.

Appearing on CBS News’s 60 Minutes, Bernanke said it was “certainly possible” that the Fed would open the QE floodgates again, if the US recovery does not pick up pace.

“It depends on the efficacy of the [existing] programme. It depends on inflation. And finally it depends on how the economy looks,” Bernanke said.

Domestic critics have warned that QE2 will fuel inflation, while analysts and politicians overseas are concerned that the plan is effectively devaluing the dollar and could disrupt the global recovery. Bernanke, though, insisted that buying up US government debt with freshly created money is necessary to ward off deflation, and help to get more Americans back to work.

“Inflation is very, very low. But we’re getting awfully close to the range where prices would actually start falling ... That’s deflation and that’s what happened in the Great Depression,” he said.