The Federal Reserve’s policy-setting panel began a crucial two-day meeting Tuesday, poised to cast aside its long-held reluctance to micro-manage the economy in a bid to avoid a lost decade of growth.
The central bank’s open market committee (FOMC) is expected to approve massive stimulus spending not seen since the depths of the economic crisis.
At the conclusion of the meeting Wednesday, the Fed is expected to announce it will resume the large-scale purchase of long-term US bonds — essentially printing billions of dollars — in the hope of boosting a weak recovery.
While the Fed took similar measures during the crisis, it is unprecedented when the economy is not teetering on the edge of collapse, raising protests from some Fed members who fear it is unnecessary and will fuel long-term inflation.
Critics of the policy argue that although the recovery is painfully slow, markets should be allowed to do their work. They also worry that if the policy fails the Fed’s credibility will be wrecked.
“I think that this will quite possibly be the worst mistake by the Fed in a generation,” said Stephen Stanley of Pierpont Securities.
But supporters argue that the Fed is failing in both of the prongs of its dual mandate, with unemployment and inflation both at unsustainable levels and must act.
Since Fed chairman Ben Bernanke first suggested the possibility in late September, and confirmed it in October, markets and most economists have penciled in another round of quantitative easing (QE) as a solid bet.
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