The world is now reacting to the US Treasury’s QE2 program to purchase treasuring bonds. Ben Bernanke comments that we are seeing inflation levels below those recommended for economic growth. When inflation is too low, it can lead to deflation. The low inflation combined with continued high unemployment convinced the Fed to take further action. Bernanke also admits that QE2 will not get the economy back to normal and will need help from fiscal policy as well.
Economist Menie Chinn is skeptical of the Treasury’s actions. “Treasury yields have fallen, equity markets have risen, and the dollar has tumbled.” With the American currency now depreciated 5%, the hiring and investment plans of domestic firms might have to change.
With inflation just below two percent, the U.S. dollar's depreciation, and the unemployment rate still high, it was crucial for the Fed to take action. It is very interesting to see the remarks made by Ben Bernanke regarding the fact that the Fed will need help and that they can't do it all on their own. This really proves that he does hope his new course of action, purchasing treasury securities, stimulates the economy, but that in itself is not for a full recovery.
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