LyrArc Article Gist
The view of regional Fed presidents indicates that the Fed may take a pause from any further intervention in financial markets. QE 2 was launched at a time when the government was at a deadlock for any further stimulus, and a deflationary trend was setting in. In August of 2010 inflation was on a downward trajectory, from 2.8% to less than 2.2% in a few months. A New York Times article by Paul Krugman pointed out the dangers of deflation. Alan Blinder argued for the need for Fed action with the deadlock in government over further stimulus in another op-ed in the Wall Street Journal at the time. The political deadlock continues with pressure to cut federal spending to reduce the deficit, reducing the chances of government support, and leaving the Fed as the sole source of support. The Fed initiated QE 2 in Novemeber 2010 when consumer prices were up 1.1% from a year earlier, and far below the Fed's 2% goal. In April 2011 consumer prices were up 3.1% over the prior year. Current TIPS prices suggest investor expectations of inflation of 2.8% over 5 years. Another deflationary trend could lead the Fed to take some sort of action in the presence of a political deadlock for government action.