Asked yesterday on Bloomberg TV whether the Fed will start to cut its $85 billion program of monthly quantitative easing, New York Fed president William Dudley said “It really depends on how the economic outlook evolves…It’s too soon to make that determination.”
Even if the US central bank does slow its purchases of government debt and mortgage bonds with newly created money, Dudley said the Fed would only be “adding less stimulus” rather than actually “tightening” monetary policy.
Dudley’s colleague James Bullard, president of the St. Louis Fed, meantime warned Europe yesterday that it needs to start quantitative easing to avoid a long, Japan-style depression. “You should worry about it, and then take policy action to avoid it,” said Bullard. “One way to get stuck would be to be passive in this situation and not take some aggressive action to try to get inflation back.”
“Europe can draw lessons from Japan on the dangers of half measures.” agreed new Bank of England governor Mark Carney.