Fed could launch third round of printing money, warns economist
Published 02/12/2010 | 05:00
The US Federal Reserve may have to embark on a third round of printing money next year, a leading Wall Street economist has warned.
Alan Levenson, chief economist at T Rowe Price, the investment management firm, said he did not expect the second round of quantitative easing to have a significant impact on the American economy.
As a result, and with unemployment and the rate of inflation wide of the Fed's targets, he said it was possible that a third round of monetary easing -- QE3 -- would be launched.
"The unemployment rate is unacceptably high for the Fed, and inflation is way too low," Mr Levenson said.
"If unemployment remains at 9pc next year and inflation stays at 1pc, when QE2 runs out in the middle of next year, then, judging by the Fed's thought processes, we'll get QE3. I wouldn't rule it out."
Mr Levenson said it was possible that the Fed would be tempted to embark on another round of monetary easing even if unemployment dropped below 9pc.
"By the end of the year, if we are creating 165,000 jobs a month and the rate is going down every two to three months, I don't know if we will have done enough. The arguments may change," he said.
Mr Levenson said he had been opposed to a second round of quantitative easing on the grounds that, while the US economy had suffered a disappointingly slow recovery, it was clear that America had avoided a double-dip recession.
"I am concerned that the policy may end up getting more credit than it deserves. The latest round was announced on November 3 and, two days later, we had a better-than-expected jobs report," he said.
"My reaction was that this has to be a pretty potent policy -- the mere announcement of it leading to better job creation."
Unveiling his economic forecasts for 2011, Mr Levenson said he expected the US economy to grow by 2.9pc and the unemployment rate to fall to 8.6pc by the end of next year.