The Wall Street Journal

Fed Fires $600 Billion Stimulus Shot
The Wall Street Journal

The Federal Reserve, in a dramatic effort to rev up a « disappointingly slow » economic recovery, said it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing and growth.

Many outside the Fed, and some inside, see the move as a ‘Hail Mary’ pass by Fed Chairman Ben Bernanke. He embraced highly unconventional policies during the financial crisis to ward off a financial-system collapse. But a year and a half later, he confronts an economy hobbled by high unemployment, a gridlocked political system and the threat of a Japan-like period of deflation, or a debilitating fall in consumer prices.

In essence, the Fed now will print money to buy as much as $900 billion in U.S. government bonds through June—an amount roughly equal to the government’s total projected borrowing needs over that period.

In normal times, a Fed spending spree on government bonds would be highly inflationary, because it would flood the economy with money and raise worries about too much government spending. The mere worry of too much inflation in financial markets could drive long-term interest rates higher and cause the Fed’s program to backfire.

Michael Pence, a top Republican in the House of Representatives, said the Fed was taking an « incalculable risk. » Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, who described the move before the meeting as a « bargain with the devil, » was the lone dissenter in a 10-1 vote of the Fed’s policy committee.