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Time for the Fed to Back Off

Fed chairman Ben Bernanke was interviewed by CBS News’s 60 Minutes. Over at e21 (with which I am affiliated), David Malpass does a careful fisking of Bernanke on the issue of the second round of quantitative easing (QE2) — a rather esoteric monetary issue but one that has significant economic ramifications.

In Malpass’s words, “Having the Fed buy bonds in the absence of a crisis is unprecedented and raises many risks — it manipulates markets, creates a bigger overhang when the Fed tries to unload the bonds, risks capital losses at the Fed if interest rates rise, and puts taxpayers and the dollar at risk by shortening the maturity of the outstanding national debt.”

My concern is that given the dismal jobs report on Friday, in which we learned that unemployment increased to 9.8 percent and private-sector job creation was anemic, the Fed will be tempted to get more, not less, aggressive. It shouldn’t, for reasons laid out by Mr. Malpass.


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