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Roubini Global Economics: Will the Fed scale up QE2?

Sunday, November 14, 2010

"One can tell a seemingly optimistic story - the threat of the double dip is behind us, setting the stage for a nice return to potential growth.  But that story holds the dark side of persistent, pernicious low levels of labor utilization.  

Still, I think now the Federal Reserve would have chosen the optimistic narrative had it not been for the obvious slowdown midyear.  Which suggests to me they are not eager to do more, especially if growth settles back in at trend.  Reinforcing that belief is the Warsh speech, which makes a strong case that further monetary policy is increasingly ineffectual and very risky.  

But even more important, he makes clear a belief that only Congress and the Administration have the tools to restore growth.   I imagine if that view is, or becomes, a widespread opinion among policymakers, we have seen the last gasp of quantitative easing.  

They have abated the financial crisis, serving as the lender of last resort, and flooded the economy with cash.  They have done what they can.  The rest is up to the fiscal authorities."

Tim Duy


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