Fed Watchers Join QE Debate With Scathing Words

As debate rages about whether the Federal Reserve’s aggressive asset-buying policy will revive a frail economy, some prominent central bank watchers have made it clear just where they stand on the subject.
“The Fed will write $1 trillion or more in checks over the next twelve months, the ECB will write the same,” Bill Gross, the founder and co-chief investment officer of Pimco, the world’s biggest bond funds, wrote via Twitter late on Sunday. “(There is) reflation ahead. (It) will create asset bubbles but little growth.”

That view appeared to be shared by Martin Feldstein, a former chairman of the Council of Economic Advisers which advises the U.S. president on economic policy, who had critical words for the Fed when he wrote an opinion piece in Friday’s Financial Times newspaper.

Feldstein, an economics professor at Harvard University, said the Fed’s decision to buy mortgage-backed assets for an unlimited time means the central bank has now embarked on a “very dangerous strategy” that could lead to high inflation and destabilizing asset bubbles.

The Fed said last month it would create money so it could buy $40 billion worth of mortgage-backed securities a month, a policy it intends to pursue until the jobless rate, currently at 8.1 percent, falls significantly.

But by focusing on unemployment, the Fed has put itself in a difficult position if the jobless rate stays high and the central bank needs to tighten monetary policy to keep inflation in check, Feldstein wrote.

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